Kamis, 11 Februari 2010

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:





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."

Rabu, 10 Februari 2010

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.

Selasa, 09 Februari 2010

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.

Senin, 08 Februari 2010

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

Minggu, 07 Februari 2010

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 130th 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 130th 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 130th 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.