Blog Extract with Comments All in one html - Thanks Yuval.

One of the followers of the blog has done some work that will help all of us.

He has extracted the whole blog until February 23, into two files, with and without comments so it can be read more easily in one browser file. People joining the blog who want to catch up can download the zip file and plough through the all the posts and comments.

You can download it from here.

I will put a link to this post into the KEY POSTS.

Questions and Answers

I had a few comments yesterday, one of which was a chastising one. As the three comments related to each other, I thought I would answer them here.

tickvix said...

El, If I understood right, you determine context by historical S/R, MP levels, fibs etc. As context is very crucial in your set ups, do you look for the same/similar context each time you take a trade? Is there a correlation between your 18 or so set ups and the context? Thanks

tickvix, context is a bit more than that. Context is the type of paper that the picture is painted on. For example, where am I in the Keltner cycle? Is my buy setup at the lower, middle or higher band? Am I leaning on support for a buy setup? All these things qualify the setup as good or not in addition to the setup components themselves.

Andreyyy said...

I've been a follower of your blog for a long period of time and i'm a little bit disappointed with a posts like this and i think so are many of the readers of your blog. You could ask me why? So here is the answer. In your webinar's and in your earlier posts you are talking about observation of the market, discretionary trading, trading the context and so on. Also you are talking about developing own setups. Yes, here is part of true, but only 1/2 of true. I'm not a novice trader and i know what i'm talking about after the 8 years spent in this business. The main problem is that in one posts you are talking about discretionary trading and in the another about pure mechanical trading. One couldn't backtest observed setup, and to get some "x' probability in the backtester if there is no hard and fast rules. I've developed ~ 4 profitable strategies over the time and there are hard and fast rules which you could write on the piece of paper, to get it to the novice trader and he'll become profitable if he will follow all the rules. So i think same is in your situation. Surely here are hard and fast rules, this could be observed from your charts. Like price crosses EMA, VB is down and CCI is crosing zero line. And here is a reason why are Kthe iki profitable. She know such a rules, and i don't think she had developed her own setups in such a shord period of time. So i think we shouldn't speak about trading context and so on. So either you speak about pure discretional trading or either mechanical. If you are talking about both - you are confusing newbies, which are your followers and don't understand how to trade. So if you would like to be an accountant for your and your daughter trades you should post your charts and if you would like to teach you should give people these obvious rules and please, don't speak about discretion and context. These rules, which you had put in the backtester and got 80%+ win rate. Or which know your daugter. Desribe your basic setup without discretion, as KikiFlo Bot trading it. As i said you told some rules to this Bot isn't it? I think many of your followers thinks same as myself. So if you re teacher, and if you would like to teach you should post the rules like this...( here is my modification of my trading system a-la "electonic local" and how i would trade in your way). 1. Instrument: ES 2. 1.25 Range Bars, 33 and 99 EMA, anything else, as in your situation. 3. Long entries. 3.1. Wait for the price crossing and closing above 33 ema. Full body should be above 33 EMA, and not part of the body. For the conservative traders wait for the close above 99 EMA too. All the parameters should be met: 3.2. Cumulative delta is green for at least 3 candles; delta momentum is green and rising, CCI is crossing zero line or crossed it already and headed up. Stop - below 33 EMA or x range bars, like 2 range bars or 3 range bars. Profit target - 2 points. That's all. trade this setup and you'll be profitable. If you would like to be MORE profitable and to have more winning trades you should like on MP, trendlines, VAH and VAL and so on. so, electronic local think about my words or, please, don;t confuse people.

Andreyyy, this blog is not a mentoring service. With mentoring comes both responsibility and a requirement to monitor the student's actions. I have painted with broad brush strokes the principles that I have taught Kiki. A large number of you have emailed me that you have taken these principles and used them to become profitable after having not been CP, or have said that the principles they learned by reading this blog has enabled them to take their trading to a higher level.

People take what they find useful in the blog and use it in the way that they interpret the information to help them become more successful traders. If I have time I try and answer questions that I think may be useful for everyone. I backtest mechanical setups without context to see that my basic idea is right. I then watch them live with context and finally risk my own money one them. When I trade I look at the context to qualify the trade.

Anonymous said...

Hi,El, Thanks for this great post of revealing your underlying methodology and trading philosophy. Just a small question. You mention that your have 18 setups. Are trading against POC,VAL and VAH three setups or only one setup based on the same logic? Thanks again

Anon, all the setups are based on orderflow and momentum in different contexts. I use the different indicators to provide the information which I selectively interpret with discretion taking into account the context and to fit the vision I have of what is happening and likely to happen. The Profile, Keltner and EMAs are part of the context so when I look at the order flow and the momentum with which price is moving, I can see whether I am likely or not to be able to get a first scale. That is really all I care about when I pull the trigger. I want to get that first scale. Then when the first scale is taken, either at a fixed point amount or at the first S and R area, I look to see whether continuation is probable or not, and act accordingly. I evaluate my position at the close of every bar.

While I am trading I am continually seeking information. Sometimes you will see screen shots with indicators set to non standard values. That is a result of my changing them during trading to get a different look. I change them back afterwards. For example, with the smoothed CVD, I use a 9 bar smoothing but often switch to a 3 bar smoothing to have a look see at what is happening on a more granular basis.

 

The Rain in Spain isn´t Mainly on the Plain

We are down in Andalucia, Spain, where it is wet. We got lost getting to our hotel in the hills after our flight arrived late, so no post today. Back to normal tomorrow.

In Search of a High Win Rate

Hi all, I'm still travelling, taking a few days off, so no charts, just posts. I am also behind in answering comments but will catch up soon. 

I get emails from people finding it hard to believe that it's possible to achieve a high win rate. It is hard and requires an inordinate amount of work, work that many people are not prepared to put into it. Becoming consistently profitable is no easier than going to university and becoming a top professional in any other area, it requires the same dedication and work, for most of us.

For most people, achieving CP is like winning the lottery. Not only because of the lifestyle it gives them if they achieve it, but also because their chances of getting there are about the same as winning a prize in the lottery.  The flip side of the coin is many people do achieve consistent profitability and that is why so many try.

I'm not trying to be patronising but to get there, I needed a lot of hard work. I mean really a lot. I also found I had to have a lot more winning trades than I had losers. In teaching Kiki to trade I wanted to save her the pain and financial losses I went through. I achieved that. From the many emails I get, I hear that what I taught Kiki has worked for many of you who read this blog. Good on ya all.

I cannot trade a methodology that does not have a high win rate. With a low win rate I would need to make up on one trade what I have lost on many. After losing 5 times, I won't be able to put on that 6th trade that might win it all back. What sort of business operates on the basis of selling at a loss until a hoped for sucker walks in and hugely overpays so the business is profitable?

All of the successful traders I have known over the years have had a high win rate.

Getting a high win rate means you have first found a high win rate setup by identifying the picture you need to see for it to be a winner. Setups need to be general enough so that they repeat themselves often enough to provide the trading frequency you need yet be specific enough so that it does not bring in more losing trades. My arsenal comprises about 18 setups, each of which has a high win rate. During my typical trading day I expect to see at least 5 to 9 of them and I will not take them all due to indecision on my part or just piking out for no real reason or because I lost focus.

Each setup has been identified by looking at charts. I find what would have been winning trades and reverse engineer a setup out of them by identifying through replay mode what the commonality is of at least sample of 40 of the type of trade I'm working on.

I program the basis of the setup and run a backtest over a couple of years of data. This backtest does not take into account the context as up until now my available programming skills were not up to the job. I then went over a large number of trades and looked at the context and fine tuned the setup and documented it.

The next step is SIM trading it - in my case I watch for a new proposed setup while I am already trading setups that I have fully validated.

Achieving a high win rate is all about testing. It can be done completely manually although you can do it faster if you automate a lot of it. But however you go about it, there is no substitute for the work. "The harder I work, the luckier I get" and " Genius is 98% perspiration and only 2% inspiration" are my mantra.

I will not trade live a setup that won't give me around 80% win rate in SIM. My win rates are based on achieving the first scale.

In designing a setup, I do not test for overall profitability because I know if I can get to the first scale I can manage the trade to try and maximise my profits.

In spite of what a lot of unsuccessful traders tell you, achieving a high win rate is possible if you do the work. A lot of work. You also need to develop the focus to take advantage of your work and not fall into the many psychological traps we create for ourselves.

Winning trades take care of themselves, I only need to avoid the losers. I do this by identifying what are winning trades.

Mangled math

I find it interesting that the soon-to-be passed "bi-partisan" jobs bill is being hailed as a victory for the unemployed. This bill is supposed to offer tax exemptions and incentives to companies that hire the unemployed, along with a grab bag of $250 bonus checks for "cash-strapped" seniors on Social Security and more highway dollars.

Unfortunately, I can't wrap my head around this $15 billion package that is supposed to send only 250,000 people back to work.

Get your abacus out while I run through a little math with you. First, take $15,000,000,000 and divide it by 250,000. What do you get? The answer is $60,000. That's how much money it takes to create each job. Sounds like an awfully expensive and wasteful package.

Now, I understand there is a lot of money in there for seniors and highways, but it still doesn't make sense. Why doesn't Congress just give me $60,000 a year to plow my elderly neighbor's driveway (which I've already done three times this winter) and I'll give him $250 for some pocket change to buy some groceries and hard candy.

That sounds like a jobs bill I can believe in.

See the Leaves

Sometimes you can't see the forest for the trees and sometimes you need to know that a tree is made up of branches, trunks and leaves.

There were a couple of comments by cleon that I want to repost here because it was so well said and summarised, that everyone will benefit from reading it and applying what he said:

EL - Thank you and Kiki so much for taking the time to share your thoughts on the web. After reading the entire blog twice w/comments, and watching both webinars, I think it's interesting that most people are so focused on your indicator settings. It's kind of like getting hit by a car and worrying about what kind of tires it had, vs maybe not walking on the highway at night.

Anyway, I trade a similar chart as you http://snipurl.com/ugh06 which I am comfortable with, but thought that I would share what my takeways were from your very insightful posts. These are ideas that you presented that resonated with me, in no particular order:

Keep it simple and trade one chart (I realized I was looking at WAY too many marekts and timeframes looking for that perfect signal confirmation - and hence actually missing alot of great trades)

Don't forget that candles represent order flow and can be very useful for gauging sentiment (added back some key candles like engulfing and piercing and coded them to highlight bars in yellow when coinciding with delta divs)

Setups are really just a tool to get into a trade that has a contextual basis (focus more on what the market is telling you, and use the setups to execute against that vs just searching for setups all day long)

Location, location, location (similar to above)

Use your statistics to improve your trading, not just to track your performance (my biggest issue right now is my exit strategy, or lack thereof, and the way to fix that is to look back at what my trades do time and time again)

Trading the market profile should be an ACTIVE process (I realize that I am looking at the profile in a very static manner, and should really focus on learning how to read what it's telling me real-time, and to look back at previous profiles with a much more critical eye, decomposing prior price action)

Needless to say your blog has inspired me to spend less time tinkering with my layouts, and much more time going back through charts and looking at how price acted around various MP pivots. Market replay is vastly underrated, and to your often repeated point, it will benefit me much more to do this exercise myself, then to simply ask YOU how price trades around VAH. Thanks again for producing one of the most honest and useful trading blogs on the net, and sharing the story of your and Kiki's road to CP!

I almost forgot, the other key takeaway I had from your presentations is to really KNOW YOUR INDICATORS (I realize my indicators are fine, but I haven't put nearly enough energy into REALLY understand what they are telling me - they are so much more than just setup highlighters...they are giving you information about what is happening in the market at any given point in time). It was obvious to me from your blog that you really know your tools, and that is probably far more important than the tool itself!

Trading is an endeavour that requires me to go with the flow. I have to focus on what is happening. My job is to process the information that my tools give me and make trading decisions based on the information I receive. If I focus on indicators rather than on the total picture, I am looking at the leaves rather than the forest. By looking at the total picture and being part of the market I am assessing and weighting the total information I get in an intrinsic manner rather than looking at each of the components.

The Black Hole of Resumania

Just a few months ago, I blogged about being concerned that my resume wasn't even making it to a supervisor's desk for consideration. It's rare you receive a correspondence rejecting you, and it's bizarre that such a response would actually be relieving. Unfortunately, it seems this is the case for just about every unemployed worker out there.

CNN has immersed itself in the unemployment issue and followed a number of people who have been without a job for longer than six months. They are going through the same thing as us, and it's becoming increasingly frustrating as our resumes are being sucked into the Internet's black hole...

Ever applied to a job online only to have your résumé seemingly vanish into a void?

From crafting a winning cover letter to acing an interview, landing a job is tough enough in this market. But millions of job seekers can't even get a foot in the door as they apply to countless positions and seldom hear anything in response.

The story goes on to talk about how most employers are bombarded with e-mailed resumes and usually click through the first 20 or so before discarding the remaining 400. That's messed up. What's the point of trying to find work anymore? There really isn't a reason. Instead of searching for sustainable work, I think it's time to to start pulling job applications from Shop 'n Save, Home Depot and Kmart.

It seems there's no need to waste any more time looking for a job.

Learning to Trade - Where Do You Start

No Chart today as I'm traveling back from Europe.  Trading resumes tomorrow.

I have covered quite a bit of what was involved in Kiki's learning to trade in this blog. That was the prime motivation for me starting it until the blog seemed to take on a life of its own.

But where do you start if you don't have someone pointing you in the right direction? I guess, with the internet so prolific, you start with someone else's ideas and see where it takes you.

Trading can be broken down into components - a vision of where the market is going in your timeframe, a setup, a trigger, trade management and the exit.

OK, you're a newby and have no vision and the rest is a tall mountain to climb. How do you eat an elephant? One bite at a time.

You look at the trades posted in the blog and try to reverse engineer the setups. What do the trades have in common? Read the posts and the comments and replies. Then start SIM replay, really slowly. Try and fit the posted trades into the running sequences you see in the replay. Most software has the replay facility and a lot of brokers will let you run a demo account for quite a while. You can also get delayed data from vendors or history from a friend. Kiki used to get up early before work and also when she came home and shared her Dungeons and Dragons' time with SIM replay. Once you get CP on replay you graduate to live SIM.

The Web footprint

Less than two days after losing my job, this blog was flowing inside the tubes of Internet. With the ability to write, but nowhere to write, it gave me the ability to share my feelings about the newspaper industry and other topics. Apparently, I wasn't alone, as a New York Times op-ed pointed out this weekend. They took the words right out of my, well, blog...

Have keyboard, will travel

By SHEELAH KOLHATKAR
NY Times Op-Ed
Feb. 20, 2009

You can tell when a print journalist has lost his full-time job because of the digital markings that suddenly appear, like the tail of a fading comet. First, he joins Facebook. A Gmail address is promptly obtained. The Twitter account comes next, followed by the inevitable blog. Throw in a LinkedIn profile for good measure. This online coming-out is the first step in a daunting, and economically discouraging, transformation: from a member of a large institution to a would-be Internet “brand.”

Dozens of Web sites have correspondingly sprouted up, posting articles written for free or for a fraction of what a traditional magazine would have paid. Into this gaping maw have rushed enough authors to fill a hundred Roman Colosseums, all eager to write in exchange for “exposure.” Paul Smalera, a 29-year-old who was laid off from a magazine job in November 2008, is now competing with every one of them. And after months of furious blogging, tweeting and writing for Web sites, Paul has made a career of Internet journalism, sort of.

Read more...

Oh My Gosh, the Price Moved

I get a lot of emails, and some comments too, asking questions about "how did I know" or "why...".

Guys, you are trading in a vacuum. Context and envisioning is everything. There is now a huge advantage in being an electronic local or day trader instead of trading from the floor. You get all this information in picture form so you can imagine what can be happening. You can see the bias and the possibilities of the market. You can see that if this happens then that is likely to happen. Then, when price moves and order flow in the form of the VB and CVD shows itself and the range bars do something and if you have MarketDelta and see what is happening with volume at each tick inside the range bar, you make a deduction. If momentum is picking up and you are leaning on support then you can pull the trigger.

The interplay between the two CCIs and the relationship between the two EMAs give an enormous amount of information. The way to learn their language is to look at charts. Look at moves in hindsight and see what commonality exists. Once you see the commonality you can create a setup and backtest it, fine tuning as required. You then "own" the setup and believe.

I have been watching the winter olympics and the one thing in common that all the athletes who are successful have, is they believe. They have worked out their setups, practiced them and then just put it all into practice. The same as in trading.

I have taught Kiki that she can't just sit there until something happens and then decide what to do. You are part of the market and must be part of it completely, thinking and working out what is going on. At the end of my trading day, I'm exhausted. It's not because of laziness that I stop trading by RTH lunchtime. It's because I can't function at the level I need to for any longer.

Here are today's morning trades in the DowEuro50. I traded the ES in the afternoon but have run out of puff so no afternoon charts.

Each Trade is 3 Contracts		Exit Types
Date	19-Feb-10
Trade #	Points W/L
Trade 1	9.00	Reversal
Trade 2	39.00	3 scales
Trade 3	55.00	3 scales
Trade 4
Trade 5
Trade 6
Trade 7
TOTAL	103.00	1030.00 Euro

Local doctor hits the slopes with Team USA

By Michael Jones
For the Tribune-Review
Jan. 28, 2010

Josh Szabo grew up dreaming of one day becoming an Olympic skier.

But while training for competitions a notch below the World Cup level in 1988, he suffered a severe knee injury that effectively ended his career.

So Szabo turned to orthopedic medicine, which has allowed him to remain close to the sport that he loves. Earlier this month, the 38-year-old Gibsonia resident found himself on the slopes in the French Alps working as a physician for the U.S. Ski Team.

"If you participate in their sport, there is a bond that is immediately established," said Szabo, who works for Tri Rivers Surgical Associates, headquartered in McCandless, in the North Hills. "I think I form a better relationship with them. I can ski with them, and it does provide some perspective with the athletes."

Szabo accompanied the ski team for three days while it competed in the World Cup at Les Contamines-Montjoie in France -- a competition that helped determine who will represent the United States in the Vancouver Winter Olympics next month.

He worked closely with the athletes competing in ski cross, a new Olympic event that involves four skiers racing down a course with jumps, bumps and banked turns. Lindsey Sine, a spokeswoman for the U.S. Ski Team based in Park City, Utah, said ski cross involves a lot of passing and even some bumping.

"It's an exciting head-to-head battle down the course," Sine said.

That battle can lead to tough injuries, Szabo said.

"They're big, strong athletes that can push each other off the course at any time," Szabo said. "People talk about football and soccer players being tough. When these guys get a bad injury, it's a horrific injury."

Read more about the new Olympic sport...

Why Trade the eMini S&P

People choose different futures to trade for different reasons. Traders choose a market to trade because they believe they will make more money trading that market than any other.

I think I have said that I have traded just about all the futures and FX markets over the years including Beans and Bellies. I have traded the cash, metals and stocks. I now mainly trade the DowEuro50 and the eMini S&P because of the above reason. These markets have large volumes = liquidity and open interest. They are hard to manipulate (note I said hard, not impossible) and a single trader has less effect in these markets than in most others.

In addition, the eMini is really smoooooth. If you look at the CVD of the chart below you can se that you can almost trade the market off the CVD. Add the EMAs and you really need nothing else. The CCIs are probably overkills until you trade some of the other markets when that momentum information is even more valuable.

Today's Trades. Putting in the P&L has been a real pain but I have been getting so many requests to put it back into the blog. I have decided that for the time being, I will mark the entries and exits on the chart as it was when we first started and put in a total points made or lost on the trade. This is a balance between providing the information a lot of people want and making the best use of my time. Each result will be based on a 3 contract entry, as before.

Each Trade is 3 Contracts		Exit Types
Date	18-Feb-10
Trade #	Points W/L
Trade 1	6.00	All Out
Trade 2	9.00	All Out @ Yesterday's extreme
Trade 3	0.00	whataMistaka2maka
Trade 4	2.50	Scale + Reversal Exit
Trade 5	10.50	Scale+KC+1.272
Trade 6
Trade 7
TOTAL	28.00	$1340

When Do you Cut a Trade

I have long believed that an important part of trading is the exit. It's the exit that determines whether you close the position at a loss or a profit and how much of a profit.

You put the trade on and manage it. But how?

The obvious exits are when the momentum and order flow result in a complete reversal. You don't need to work that one out. You're the first to know. But what about a trade like the Gap Fill trade today on the ES? I was a bit early on the entry at Trade 1 and cut it at the 33EMA. The 6CCI told me that there would be a pullback and I took the hint.

Trade 2 was a better entry because the CVD was red. I still wasn't too happy with the 45CCI running horizontal positive but took the trade because I saw 2 points for my first scale. Scale I did. I cut the balance at the first green VB as it looked like "they" had decided that close enough was good enough and the risk/reward had now changed. The ES had been grinding higher all the London morning and although I expected that to continue to test the area just above 1100.00 I also believed that the Gap Trade would be in play and hoped it would bring in enough day trade profit takers to make a good profit.

After that trade, i couldn't go long until the resistance issue was resolved so I waited, and waited and waited. The sun was shining in London and I was looking out the window at the trees in the park opposite my house.

Patience, patience and then there was the divergence trade - Trade 3. By now, the CVD was useless because of all the sideways action but the nice peak in the 6CCI and a rejection of resistance above with the red VB put me into the trade. This was all in and all out at a couple of ticks above yesterday's high. It seemed that everyone was watching the same movie so I had to pay up 2 ticks to exit and finish the day. The Footprint Volume Profile paid for itself today.

I have been reading some of the stuff that the "gurus" are writing and it seems that their selling point is to help their customers make 4 ES points a day. In today's market that is not a big ask. The problem is those darn losing trades that get in the way. I asked Kiki whether she thought that 4 points was hard. Her answer was very interesting. She said "all you have to do is tighten up a bit and only take the trades when EVERYTHING lines up, take your 2 points and run. Then do it again during the day." This is the focus of Kiki's FloBot - the surest trades.  We've got two years of data on several different markets and there is alot of testing going on, so FloBot update at a later time

This all goes to reinforce my battle cry for CP traders in the making: Trade 1 market from one chart using only 1 setup.

Trade well everyone. Making money is the best revenge.

Jerking us around

When I thumb through the newspaper or search online job boards for openings, I'm beginning to wonder: Are they really hiring?

And that question is being raised by the shell game WDVE-FM played with its morning radio show. Three weeks ago, morning radio personality Randy Baumann mysteriously disappeared from the show. Hours later, Clear Channel Communications advertised an opening for his position, asking for resumes and demo tapes.

I wonder how many suckers actually applied for that job. It was all for naught, because Baumann returned to the show this morning. The reason for his departure apparently was over a contract dispute.

So it seems that anyone who sent their portfolio to Clear Channel was used as nothing more than a negotiating pawn by the radio station and Baumann in a contractual game of chicken. So how many of these companies are advertising job openings -- and wasting our time -- just because they have to?

I can't help but think that the majority of the resumes I send out are for positions being filled internally, or not at all. And that is just wrong.

Not qualified?

I consider myself a professional in whatever task is handed to me. You want me to write a story? Just tell me the deadline. You want me to deliver important documents across town? When do they need to be there. You want me to perform as The Wild Thing? Well, OK, but I'm not doing the flip at the end of the Wild Thing Workout.

So it was just a little bit surprising when I received an e-mail this morning from the federal government saying I am not qualified to be... a secretary at Fort Necessity National Battlefield in Fayette County.

"This is to notify you that your score/rating was not within reach for referral. Therefore, your name will not be referred to the employing agency at this time."

My rating? I'm not a dishwasher being reviewed by Consumer Reports!

I can hardly say this is a major setback, but it does make me wonder what you have to do to get an interview for a job. On the other hand, at least they wrote me back to tell me I wouldn't be brewing coffee and recording meeting minutes just a few feet away from George Washington's only military surrender.

Cirque du Soleil

There were two reasons I started Kiki off on learning just one trade setup. The main reason I have already explained - get that "muscle memory working". The second reason is that some setups are harder to execute than others. By harder, I mean emotionally harder.

These are typically what I have called the "outside in" trades - the trades where you are picking tops and bottoms. You are the knife catcher at the circus. I think that it is important that new traders stay away from these as it is easy to develop bad habits from these trades.

Part of the process that Kiki has used to integrate these trades into her trade plan was to track them separately and to extract statistics separately for them. It may be that money management of these trades should be different. Maybe there should be no scaling, maybe there should be more scaling. She just doesn't know yet until she gathers more statistics.

This mornings open in the DowEuro50 future on Eurex was one of the tough trades in that there was no time to make your decision. Either you took the trade or you missed it. It was a POC trade like yesterday, but instead of opening higher and then trading down to the POC giving you plenty of time to prepare, today's trade opened right at the POC and then went vertical.

How can you make sure you can take these "difficult" trades? It's all a matter of preparation and envisioning. Kiki learned to do not only the pre-trade prep, envisioning what the market could do by looking at the context, but she also learned to update that vision as the market progresses, bar by bar. By doing this, she achieves a comfort level and can execute her trade plan without stress. Her vision is not a prejudgement but an assessment of what is possible and to a smaller extent, what may be probable. Things change as the market unfolds and the vision keeps getting updated. This way, there can be no surprises and she is not caught in the headlights.

More of today's trades. Trade 2 was outside in too as order flow turned at low volume level of the Profile of 11 Feb. Trade 3 was a continuation of the trade or an inside out trade as the EMA support did not hold and order flow continued sellers. When the 99EMA broke at the Keltner with the long CCI momentum down, I was looking for a 1.272 buy but the market held at the low of yesterday with a mini 1.272. My entry on the close above the MomDot was aggresive but the safer entry on the close above the peak of 2682 was not a good risk/reward as the possibility of a bounce down from the double EMAs didn't give enough reward.

After a break, I switched to the ES. There was an outside in Trade 1 - short at 1085.00 which was leaning against the top of the spike of  3 Feb. I was playing for the Gap trade and usually enter before RTH open. The trade worked like a Swiss watch when I covered at a tick above the 99EMA support at 1080.00 and I declared my day done. Kiki almost makes her living off this trade although I must admit that today's version was one of the easiest I have seen in recent days.

 

  

Click to enlarge

Fibonacci, what a lovely name

Leonardo Fibonacci was an early Italian mathematician whose work revealed the existence of ratios in nature that repeated themselves over and over again. The most famous number being the so-called Golden Ration, 0.618 or 1.618.

As traders, we look for more straws to clutch, so we embraced the Fib numbers. One problem, there are lots of them. Which one or ones do you use? If I drew lines on my charts with even the most popular Fib lines, you wouldn't see the bars anymore because the lines would cover everything. So, if you subscribe to the whole theory, you are continually having to make decisions about whether it's 0.618, 0.75 or some other fractions. You are wrong a lot and being wrong a lot takes away the confidence in your methodology. For me, a high win rate is a MUST. I say this over and over again but I believe that without this, it is hugely difficult to become CP.

I start everything from price action. I look for repetitive price action and then try and find a visual that helps me identify it quickly. That's how I started to use the 1.272 Fib ratio. It works on every timeframe I have ever looked at.

The plus for the trade is that if it doesn't work - price keeps on going, I get a continuation trade out of it. Win or Win.

So what do I look for? I need a swing high and a swing low that are far enough apart. Most charting packages have a Fibonacci Extension or Fibonacci Retracement drawing tool. I set this up so I just need to click on the High and Low swing points and it draws a line at the 1.272 extension. I then draw a box with its outside against the line and its inside taking about 8% of the area between the line and the swing low or high it is extending from.

I now have a target. When price gets to the box, I do the same thing I always do at any resistance - I look at order flow and context to see whether it will fail at resistance or break it. The times that it fails, in the ES 1.25 point range bars, there is usually a 3 or more bar congestion around the Fib box before it continues on its way to, often, a large move.

The charts below shows how the tool can find these areas. I draw the box in manually and then wait for the target to be hit.

There was a reminder in Dr Brett's blog here about the value of replay and SIM.

Looking at the historical charts of the Footprint did not really show me much and that was probably why it took me so long to find value in them. It's the watching inside the bar as the bar is forming that I want. See today's Trade 1.

Today's trades. By the way, my smoothed CVD is displayed as delta bars again - I can see it better. It's going to be a short quieter day so I can give a little more commentary today.

If you look at today's Trade 1, you can see I got in a bar earlier. That's thanks to the Footprint Profile. I watched the price around the S&R of the 33/99EMA. The bar made a lower low with selling at the bid. Buying came in at the ask and although the 45CCI was sideways, the 6CCI had hooked, CVD was buyers, VB undecided to weak but if you compare that bar to the previous bar's volume profile which looked similar - the difference is that the bar of Trade 1 closed up while the previous bar closed down. As the bar developed, it was red with selling at the bid but as it closed, in spite of being red below, it finished green with that volume the widest. These are the things I look at inside the bar and this is what should give me a one bar earlier entry. We'll see how it goes.

I entered the trade at the close. Market was gathering steam so I did not scale out at 2 points but waited until the Fib 1.272 at the red line. I exited somemore at the reversal candle outside of the Keltner and watched price retrace to the Fib 1.272 which held while order flow and momentum were positive. Flow weakened but the support held so I did too. We were in Friday's upper mini distribution on the Profile and I watched today's extremes. The high double printed so I was looking for continuation but there was another Fib 1.272 at 2704 from another swing. I'm trading a bit more size and have adjusted my scales to 1/4ths so I exited some more at 2703 with my stop below the low swing point of 2691. The second time at the 1.272 kept my attention. I closed out at 2702 after things went quiet and price failed at the 1.272 the second time. I usually wait for the third try.

Click to enlarge

Censoring death

The news is often horrifying. We see awful images and hear about terrible stories each day. But it is a journalist's job to accurately portray life. Newspapers, it is said, are a mirror of society.

But there also should be some restraint in what we see. A news organization rarely will show a dead body lying in the middle of the road because that person's dignity should remain even in death.

So it was shocking to see the fatal crash involving a luger from the Republic of Georgia. The video of Nodar Kumaritashvili being launched from his sled and into a metal pole was chilling. It made me cringe when I saw it for the first time on the CBS Evening News. Then CBS showed it again. And then they showed it a third time, this time in slow motion.

I understand why the news organization decided to broadcast this horrifying moment, but did they have to show it three times? Once was more than enough.

Interestingly, England does not permit news organizations to broadcast images of death. Due to those restrictions, Jacquelin Magnay describes the crash for the UK Telegraph, including her own emotions upon seeing the video.

"I started shaking when I first saw the raw footage," she said.

She also asks the same question as me. Did we really need to see the terrifying last moments of this 21-year-old man's life over and over and over again?

UPDATE: Quite a few people have complained about the coverage.

Stringing It All Together

Being CP really requires just that: consistency and profitability. It means stringing trades together throughout the day, the days of the week, the weeks of the month and the months of the year. Whether you call it "grinding it out" or something else, it means in my world that I have to win most of my trades and on the losers, I can't have a bleeder. So I have developed this methodology that gets me into a trade fairly aggressively, tells me if I am wrong quite quickly and gives me an expectation of instant gratfication. I have to put these together, day after day so at the end of the month I can reap a payday.

When Kiki started off, this result was what we were after. We started off with the simplest of setups that happened often, that was readily identifiable and that was also forgiving if you read it a bit wrong, giving you time to get out without a loss. We then started building on this basis and added setups. We are about 60% of the way through the process. The second half is in a way easier than the first half because Kiki now is a CP trader but it is also more difficult than the first half because the setups we are adding are slightly less reliable and more difficult to read.

The question to answer, is it worth going further with more complex trade desicions or is it better to stay with what we have and increase size. Therein lies the quandary. I am very concious of the variation of the so called Peter Principle which, when applied to trading, could be that we keep on increasing size up to the point when the stress on the trader is too great and he cannot operate CP as he did at a lower size. This is a question each trader must discover for himself.

I had computer issues today so I am on my backup with MultiCharts. New laptop is arriving Monday I hope.

Trade 1 was the usual morning trade, Trade 2 was its continuation after pulling back to resistance  - the EMAs. Trade 3 was a failed attempt at the move down in RTH but support held. Trade 4 looked like we would retrace and was the loser for the day. Trade 5 was the actual retracement. Trade 6 hit the Box right on and became Kiki's outside in trade of the day. It did its job and came back to the EMA. I won't say how I calculate the Box but will acknowledge your correct explanation in a comment to the blog. There is usually more than one of these every day.

The position of the EMAs relative to each other and whether they are diverging or converging and what price is doing in relation to them is an important thing to watch. During one of the SIM exercises I gave Kiki, she had to paper trade just using these two lines and the Keltner. Was a great tool.

Could You have Taken these Trades?

This is the second of today's posts. More on the theme of delta divergence.

Below are the charts showing two DD trades - "Outside In" trades. I have included both the candle version and the Volume Footprint version as I have had a number of questions about it.

 

 

The two trades are the same but different. The same in that each have a new swing low with a green VB. So prices made a new swing low but the bar ended up with a positive delta.

Looking at context, the first trade was at the Keltner and near a Profile low that took out the IB by just one tick. CCI momentum was turning. Price was a lower low. This was a very hard trade to take. I have taken the smoothing off the CVD for these screenshots to show the raw data. Under the usual inside out setups, the entry for this trade was 13 bars later and 3.50 points higher.

The second trade looks similar. But the context is different. We are far from the Keltner and miles from any Profile support. I entered this trade 10 bars later as the context just didn't fit.

What additional information did I get from the volume footprint that a candle chart did not show? Probably just enough to get me into the trade. The bar that made the new low developed with the open less than the close so was a green candle. Buying at the offer came in as the range bar developed upwards with more volume in the top half of the bar than the bottom. Also, my exit stop would have been wayyyyyyyy outside the Keltner when it was not very steep downwards.

Hard to quantify all this as "rules". It's a picture I look at (Kiki did NOT take the trade) and process the information. It's a very hard trade to get right. What is important and where shall I place the emphasis? Without a higher low the risk is much greater. These outside in trades are tougher as I said.

Inspiration + Perspiration = SUCCESS

There will be two posts today!

This first post is to congratulate a blog reader, Mike who sent me the email below. Kiki and I get quite a few success emails and we get a great kick out of people who are using the blog to find their way to CP (consistent profitability). I am posting it as encouragement for everyone who has not yet crossed the winner's line that yes, it can be done.

You and Kiki have been a big help and inspiration to me and have provided a way for me to turn the corner in my trading.  Thank you!  I would like to make a donation to the charity that you mentioned a few months back but when I go to their website, it looks as if it's setup to only take donations from folks who live in the UK and who can pay in Euros. 

Can I send you a check directly (in USD) and you make the donation?  I'd really like to contribute but don't want to turn it into a hassle for you. 

We put Mike in direct touch with MacMillan Cancer Support who were happy to accept his cheque (check). Here is a link to how to donate to them if you feel so inclined:

http://www.macmillan.org.uk/Documents/Donate/PersonalDonationForm.pdf  for a donation from a single individual

http://www.macmillan.org.uk/Documents/Donate/Companydonationform.pdf  for a donation made with a company cheque.

http://www.macmillan.org.uk/Documents/Donate/CollectionDonationForm.pdf for a donation resulting from a collection.

Good on ya Mike and thanks.

PS: Everybody, I am running behind again on answering emails. I will try and catch up over the weekend, so check for updates then. I'll also put this post under key posts calling it, "How To Donate To MacMillan Cancer."

The answer would be, "NO!"

Our memories fade rather quickly. Less than two years ago, President George W. Bush boasted a job approval rating in the 20s and had one foot out the Oval Office door waiting for retirement. With just a few months remaining in his presidency, the financial markets and our economy collapsed, leading to double-digit unemployment numbers (and inadvertently to this blog).

Yet, a group of small business owners in Wyoming, Minn., paid for a billboard along Interstate 35 with the same message as the photo above. Of course, they had to use a snide photo of No. 43 waving to us with a sly grin.

But what exactly do they miss? Do they miss the disastrous decision to invade Iraq? Do they miss the illegal warrantless wiretaps on American citizens? Do they miss the abuse of foreign prisoners that tramples on everything we believe in as a people? Do they miss the stock market when it hovered at 6,000 points?

Sure, people will argue these issues and the reasons why they occurred, but how can even the most hardened conservative honestly say that the 2000s were positive and productive? When Bush left office in January 2009, unemployment figures stood at 7.6 percent (and reached a high of 10.2 percent under President Obama last October). A budget surplus near the end of the Clinton Adminstration turned into a towering deficit under Bush.

Obama obviously has not exceeded expectations during his first 13 months in office, although he does currently have a 51 percent job approval rating. He clearly has a lot more work to do and needs to start getting Republicans on board if he wants to get this country out of the ditch.

But coming from someone who does not have a job and does not have health insurance, I certainly do not miss W. holding down the fort in The White House.

Setups or Upsets

One of the important things that Kiki needed to learn was how to create her setups. I must admit that I did cheat a little in giving her a head start with one or two setups as it brought her to SIM profitability in just a few weeks - after all, she is my daughter. Kiki said not to forget to mentioned that she also has immediate feedback good or bad on her trades which really helps her.

So, how do you go about it and why?

The "why" may be obvious but not quite. If you learn to do the same thing over and over again you get pretty good at it and can do it without thinking. Trading is a little more challenging as no two trades are exactly alike but I try to find enough things in common that I can create a setup. This way, I only have to look for the commonalities in the heat of battle. I look at many, many trades until I see a pattern that looks promising. I then create a setup. I then backtest that setup for winrate to my first scale point. But the commonalities may not all be quite as you may imagine.

The screenshot above is one of my setups. It's a version of the setup I showed the other day using delta divergence. Most of my setups involve some kind of pullback. I do that as it gives me a lower risk and a tighter stop. This one meets that criteria.

1. the trend is down - 45 CCI was less than Zero for many bars
2. swing made a new high
3. smoothed CVD is red
4. market pulled back until it hit resistance - 33 EMA and/or 99EMA is resistance for me.
5. range bar closes down

That's it. I have a new setup that I can execute trades against. I used a high skill level to develop the setup but can operate at my usual lower skill level during the day to execute it.

Then there are the exits and trade management which are equivalents of setups, but a lot more work to develop.

One Might Not be the Loneliest Number

I get many emails and comments from people on the road to their success, looking for road signs and ways to avoid potholes. Trading for me is a very discipline requiring business. I need to focus very intently on what I am doing or I tend to go "off piste", as we say on the snowfields here in Europe, and enter trades that don't meet my trading plan. I think that this is one of the major reasons why people end up broke trying to learn this business.

There is a very fine line between trading mechanically and trading robotically. Trading robotically as an autotrader taking all entries and exits that meet a set of trading rules will give you an "average" result as long as the rules do not have to be changed with variations in market volatility. The end product of this will be a set of results that will have numerous losing days, maybe even a losing week or more, and not a daily consistent result. This is not necessarily bad if you know in advance that this is what you are going to get and are OK with it. Problem is that after 3 losing days people switch the robot off "because it's broken". They knew up front that there would be a week like this but when it happens they really cannot accept it.

Now trading mechanically is, for me, a different thing. I like to think I trade mechanically when I am fully focused. I have a written trading plan and I execute the trades according to that plan. My job is to process the information I see and assess whether it meets the criteria in the plan. This is often very subjective. There may be two instances that are very similar but different enough, or interpreted as different enough, to have different reactions by me. This is a great danger to your consistent profitability because unless you are focused enough to see what is there and consistently engage your "edge", you are on a slippery slope.

How does one achieve this? I have often preached the benefits of SIM but let's be more specific. I have also preached that a trader should trade one market with one chart plus the Profile for context. Let me add one more "requirement" for the aspiring trader, and this is how Kiki became CP (consistently profitable): ONLY TRADE ONE SETUP. Yes, let all the great trades pass by unless it meets the very strict criteria of one specific setup. Whether it's the morning ES RTH Gap trade or just continuation trades in a trend, whatever it is, pick ONE and become a master of it. Do it to death in SIM and then trade the smallest live until you can do it in your sleep without any knots in your stomach after the trade is on.

Now you have the tough thing to put up with.  Two setups look exactly the same and one makes a nice profit and the other stops you out. If you look at two entries today, the first at about 14:53 and the second at 15:07. Very similar trades. Why did one make money and the other not? Neither was leaning on any good support.

OK, do you take these trades or do you put something in your trading plan that requires support of a certain kind to back every trade? Depends on whether you can take a loss of 2 points at 15:04 and then put on the same trade at the close of the next bar and then make 4 points. The hard part is that the losing trade comes first. I have to stick to my trading plan. Going "off piste" is the road to losses for me and I daresay it's called the same for most of us. If you have a trading plan you only need to be clever once: when you create it. If you don't have one you need to stay clever 24x7. Way too hard for me.

Ah Ha, That's the Way I Like It, I think

KC and the Sunshine Band said it and it applies to my search for how to use the volume and order flow information better in my trading. MarketDelta lets you look inside the bar at the volume traded at each price both on the bid and the ask. I started using MarketDelta for two reasons: It was a toolbox that everything I needed all in the one application, and, it had the Footprint and variations of it. I heard some people were making good use of it but every time I looked at it, it just confused me and took my attention away from what was important.

After a few number of weeks, I came up with a type of Footprint that is like a mini Profile. I have applied it to my regular range bars but it lets me look inside each bar as it is developing a little bit better than just the VB. It adds another piece of information. I look at what is happening at the actual price as it hits support and resistance to see the likelihood of the support or resistance holding. I am trying to be even more aggressive in my entries and get in one bar earlier. It will also help with the outside in trades which we will look at down the road a bit as Kiki gets more settled in her inside out trades. This is how I configured it in MD. I know not everyone is using MD and I don't know yet how much benefit this will really be but we can find out together. Anyway, the posts will only show the candles but you should know that I (not Kiki) am seeing the information from inside the bar. Just for today I have posted both versions FYI.

We are only a few months into Kiki's live trading and she is doing terrifically well. To achieve consistently green weeks in such a short time is very gratifying not just because of her achievement but because of the joint effort we put into this. She doing her part in working very hard and me putting a program together that helped her succeed. We both needed to be right for this to work.

As the next step, we have added an outside in trade to Kiki's trading plan. You can see it as Trade 2 in the attached chart. Her criteria is the 45CCI turns down outside the Keltner and above 200 ish. It must also have volume divergence, that is, a higher high but VB red or lower low but VB green. This setup happens often enough to make it worthwhile watching for and is a very high percentage trade unlike  some of the other outside in trades. The trade works without the VB divergence but its a lower percentage.

Today's trades are below. The morning trades were fairly straight forward, the RTH started with Trade 5 which was a short, leaning on the VAH. After a false start, Trade 6 went and bounced off the POC and back to the horizontal EMAs.

 

Click to enlarge

A devastated city's redemption

As trivial as sports may be, I can't help but think that they help people in difficult times. A perfect example of that was the 2001 World Series when the New York Yankees played for a championship just weeks after 9/11.

I think Super Bowl XLIV is the same for New Orleans. The devastation to that city from Hurricane Katrina was/is immense, and the Saints obviously have lifted the spirits there. Less than five years ago, New Orleans was nothing more than a sunken disaster zone. Desperate people did whatever they had to do to survive.

In September 2005, the Charleston (W.Va.) Daily Mail sent me to New Orleans to report on the evacuations by the West Virginia 130th Airlift Wing. I want to share one of those stories on this blog to remind us how far New Orleans has come from its lowest point to this triumphant moment.

Maj. David Lester carries bags for two evacuees preparing to leave Louis Armstrong International Airport in the aftermarth of Hurricane Katrina

"Our world just changed"

By Michael Jones
Daily Mail Staff
Sept. 4, 2005

NEW ORLEANS – Early Saturday morning, the crew of the 130^th Airlift Wing landed in New Orleans and extracted numerous injured and sick patients to Ellington Air Force Base in Houston.

Less than four hours later, they did it again.

The 130^th flew into Louis Armstrong International Airport with 10 medical evacuation members and a critical care transport team trained to care for patents while in the air.

The team was able to extricate a total of 48 people, mostly elderly, who were too sick to leave the flooded city on their own.

As the C-130 touched down to begin its first rescue mission at 12:50 a.m. local time, the only lights glimmering in New Orleans were from rescue boats, searching for survivors.

The medical and flight crews were unsure of what they would see upon their arrival at the airport. Maj. Kyle Adams, the flight commander warned the crew that the “terminal is turning into chaos.”

“We don’t know what to expect and that’s the most frustrating thing,” said Capt. Steven Lehr, a member of the critical care team. “We usually get a [casualty] report.”

Because of the unpredictable nature of severe weather and the rescues necessities soon after, decisions are made only hours before the operation begins.

An eerie feeling set over the aircraft as it taxied, most knowing the airport might have little use after the rescue missions are completed. Three C-130s from the 130^th sat on the tarmac simultaneously, all shuttling survivors to different cities, including to Charleston. A large red and blue sign reading, “Welcome to New Orleans,” hung over the middle concourse, welcoming tourists before the monstrous Hurricane Katrina ripped through the region.

Just below it sat a luggage conveyor belt leading to a large white moving truck. Instead of transporting baggage, though, it was lowering bodies in white bags to the waiting truck. A temporary morgue was set up in a Continental Airlines gate labeled D1.

Medics moved their patients using baggage carts with two or three stretchers in each compartment. Lehr was taken aback after seeing all the people needing immediate medical attention.

“There’s a lot of sadness, tiredness, and total despair,” he said. “It’s hard to put into words.”

While at least a dozen C-130s from various squads around the country carried people from the New Orleans, thousands waited for commercial jets to shuttle them to various U.S. cities. The airport has become the third major shelter since last Sunday.

City officials originally opened the Superdome for residents to ride out the storm, but unsanitary conditions and lawlessness forced its closure, leaving thousands without a place to stay.

Almost every person in the airport terminal looked tired and dismayed with little hope after a week of searching for food and shelter. They sat in metal chairs just waiting.

Others just slept. Either on the floor or luggage conveyor belts behind check-out counters.

In the morning, after just one day, the terminals were filled with garbage, yet many said it still did not compare to the hell of the Superdome. One man said he spent four days on an I-10 bridge waiting for transport to a shelter. He said he had lost his wife at the airport and believed she had already boarded a plane.

“I didn’t know something like this could happen in America,” the man said, looking at the thousands of people that surrounded him in one of the airport’s concourses. “It’s like a nightmare. I don’t know how to start all over again. Our world just changed.”

A couple looking for a working vending machine said they stayed at the Superdome for four days before conditions became unbearable. They said they witnessed a man commit suicide by throwing himself from the second tier of the sports arena.

Some, though, had harsh words for the federal government for not taking care of their needs sooner.

“They’ve forgot about us,” a woman said as her autistic son slept on the tile floor. “It’s been like this for a week and I’m losing my mind.”

The lack of communication has made it almost impossible for survivors to gather information about the relief effort. One woman blasted the mayor and governor while another woman’s anger was directed at the U.S. government.

While tensions were high, all stayed calm, unlike the riotous behavior by looters and vandals in downtown New Orleans.

After the crew of the C-130 brought their patients to a hangar at Ellington, they immediately prepared for a second trip to New Orleans. They first had to get approval to extend their shift.

Flight crews are only allowed to fly for 16 hours until they must take a break. If they wished to make another rescue mission, they would need to extend that time by two hours. Within minutes, they received approval, but were still racing against the clock to make that deadline.

"At [11 a.m.] we go either with air or butts in the seats,” Adams said, alluding to the time their C-130 and crew must depart New Orleans.

When they landed, it was a much different scene than the five hours earlier. Dozens of helicopters and commercial planes littered the runways and skies, creating a deafening whistle.

With daylight brought more help and that meant less survivors waiting in mile-long lines to leave. The floors were cleaner, spirits were mildly brighter, but the loss from the week still took its toll.

Maj. David Lester, a veteran of the second Iraq war, said what he saw overseas could not compare to the horror he saw at Louis Armstrong International.

Right before the final survivors were loaded on the C-130, a doctor came to Lester, thanking him and his crew for returning. The doctor told him two of the patients would have likely died had they not been airlifted to another city.

Just a day’s work for the crew from West Virginia. This afternoon, the 10 men of Charlie West will fly back to New Orleans and continue their mission.