July 30 2010 Overlay and Trades

ES prep was good today. I want to stick to mostly charts today.

Another blogger wrote about how Chicago locals get in and do their business and then leave. I have been keeping that in mind which has helped me only hit the best sequences lately and not re engage after the edge is reduced like this afternoon.

The one notable thing today is that I opened with an overaggressive short. It was a trade based on a pattern. There was some feel but feel can be wrong, especially on top of a support zone.

I need to remember that I simply do better when I wait for the price to make it's move and then play the continuations. Even if I miss the initiation point. My win rate skyrockets when I wait.

Check out the July 28 and 29 posts if you have not already. There is a ton of useful analysis in those posts.

July 30 2010 ES PRep Posted

Tough read today. Premise for today is for test of 1085.00 and watch for potential inside resistance at 1104.25. If 1104.25 holds, watch for potential sell off to the down side. The squeeze yesterday was significant but price failed to follow through and put in a lower high. Other scenario is 1104.25 - 1085.00 range until breakout. If price holds at 1090.50 (unmarked) this morning, look for a drive up to 1116.50. The key area to watch will be how price comes off these lows. Action yesterday shifted to a selling bias but we are still in major uptrend. I will favor the short side as long as 1104.25 holds but watch for squeezes. I will stay away from shorts if 1104.25 breaks.

July 29 2010 Overlay and Trades

I was able to make an amazing comeback today after getting down 3 units (roughly 52 ticks) early in the day.

There was some market cooperation with the late day squeeze after the selling earlier.

I thought I was going to have one of my destructive Thursdays which almost always show themselves after a big winning streak but I managed to break the trend. I know when it is coming before the market opens and often contemplate not trading. However, that will never happen.

The prep read was fairly decent but the high just after the open was short of my ES resistance zone. It hit the TF resistance I had to the tick but I do not value the TF SR levels much.

When the market started selling it moved down to an area in the middle of nowhere and started basing. Then I made the mistake of drawing a line there on my chart because there was a sneaky pivot overnight on the TF.

I completely manufactured a zone, then proceeded to execute. I had discussed this issue wuith a couple other traders earlier in the week.

Yes there was a pattern and yes there was a zone. However, a pattern and a zone mean nothing and are not enough to make a trade. I must FEEL the trade and I did not feel it. I merely thought it should be taken "in case."

It is a process of convincing myself that I do not want to miss a squeeze in the middle of nowhere. The the price action bullies trick me into really liking a trade with an extremely good looking long pattern entry.

I was basically suckered into a premise. It was a trap by design. Once I got stopped out on the first entry and the price thrusted up again, I had to re enter. By that time I was pretty sure I was getting suckered but had to follow through even though it was a flawed premise. I was committed.

I would rather take a 2 unit loss than have a random outcome. I then escalated the situation by also getting long the ES which doubled me up in position size. The trade looked like it might work than ran me over for a fairly large loss for one sequence.

I was extremely irritated because my initial premise was playing out and I traded it completely wrong.

There is a thought process that I am trying to isolate that causes this. I justify the creation of the trade by assuming it is a 50/50 bet but it is not. Realistically, based on what I know, the odds of those trades working were virtually zero.

I need to wait until I FEEL the trade along with everything else that makes a trade good. This can be dangerous when the market is moving and I am not getting entries.

I like to hit the move at the initiation point but it turns out I am a much better secondary sequence trader after I have a clear read on direction.

I literally almost never lose when I wait for what I need. I almost always lose when I force an entry just because there are technical qualifiers.

Luckily today there was a big squeeze that I could clearly see and I exploited it with a sequence of 4 winners in a row. After tallying my early losses on both indexes I had a minor gain today.

I should note that I kept switching back and forth between many different ES and TF time frames trying to get my bearing on where the action was at. I needed context and could not find it.

I need to stay away when this happens because I will lay into an area once I decide I like it. I did not get the bearing until I reviewed a 15 minute TF interval chart. I never look at that but had to do something.

It turned out that my chop fest happened right in the middle of the local range which my plan says to stay the hell out of. Context and feel is everything and patterns are useless without it.

I was still off a bit mentally today regardless of the comeback. I have just developed the ability recently to make things happen in lieu of my defects.

In fact, right before the squeeze I Skyped another trader that I thought the price would come down to 1085.00 on the ES because it reversed in the middle of nowhere. I quickly adjusted because the long feel was overwhelming.

In defense of my bad call I think it will make it to 1085.00 tonight or tomorrow morning.

July 29 2010 ES Prep Posted

Premise for today is for sideways market 1116.50 - 1099.50 until breakout. I have illustrated potential inside structure at the top for a breakout. If 1099.50 starts to extend, action will be tough and prone to extension retests. The area likely will not hold or break cleanly. I will sell any extension retest and buy any pull back after a move back inside 1099.50 if price test the area.

July 28 2010 ES VS. TF Post

Double posts tonight. The overlay and trade post below is a good one and definitely worth reading as well.

This turned out to be a huge amount of information and requires more focus than many will give in one read.

I have had a few requests to talk about the differences between the ES and TF. I will start by reviewing my thoughts on pros and cons and then move on to my interesting conclusion on the ES after months of fighting. Lastly, I will address a question about stops.

ES vs. TF

The major difference between the ES and TF is the volatility and liquidity. There is less liquidity on the TF thus more volatility.

On average, the TF moves twice as far as the ES on a given move. Often the TF will move the equivalent of 6-8 ES points while the ES is just grinding and congesting.

While the indexes almost always trade in the same direction and macro pattern, there is a significant difference in key areas like breakouts and reversal points.

I find that reversals and continuations are much clearer on the TF. Then once you enter a trade, the TF produces a result much faster with limited retesting of my entry point once I have obtained a positive excursion.

This leads to far less management issues such as scratching winners and having positive excursions turn into losers. The primary reason is that the TF produces so much more bang for the buck that psychologically, I can scalp it while still feeling that I caught a reasonable move.

Dollars should not matter in trading but when you trade small size like I do, it is tough to take a $75.00 profit per contract on the ES. It feels useless because you can lose that quickly.

The equivalent move on the TF is usually $150.00 - $250.00 per contract. That feels more significant thus allows me to exit trades on the TF sooner than I would have on the ES.

This by itself should not change anything but it just so happens that a missing aspect of my trading was early profit taking. In fact, based on the results I have been getting, it is possible that this was the elusive problem and key to solving the divergence between my analysis and my performance.

Only time will tell.

Basically, what I am saying is that the TF is faster, crisper, and less mushy than the ES. What does less mushy mean?

Less mushy to me means that the TF oscillates, extends, breaks out, and trends. The ES primarily sweeps, sweeps, and sweeps for stops then breaks out, congests, backs and fills, then trends.

Many may not get this but try to think about and visualize what I just wrote.

It is the constant sweeping that makes the ES so difficult for me. I usually get the analysis right from point A to point B but a positive outcome depends on how you manage the trade from point A to point B.

I have some deep analysis about the differences in overall structure of the two indexes that I want to review at a later date. It has to do with how the structure is stacked relative to extensions, extension retests, previous support acting as resistance and vice/versa, and how the price travels from your entry point relative to your expectation.

I am going to name this study and start working on a methodology around it. I can not properly put it into words yet.

The other observation with the TF is that I am playing mostly for pattern and retest opportunities with bias than overall zone and direction.

This in itself needs to have a dedicated post.

My Conclusion About The ES

It is tough for me to say what I am going to say about the ES because I am stubborn and have been fighting it for months.

I simply think that there is far less edge for a one entry/one exit trader available in the ES when compared to the TF. I will add to that by stating that I think the ES is also tougher to trade right now than the TF (for somebody who knows what they are doing).

It is hard for me to accept that my execution and feel is not universal and that I can get better results on one instrument as opposed to another using virtually the same technique.

I can reconcile this by acknowledging that the difference in performance is due to there being something about the flow and tempo of the TF that better suits my psychological capacity to execute my exits.

Basically, the TF and likely most other lower liquidity and higher volatility instruments cause me to naturally do something that I can not consciously fix about my trade management.

I will take that and am not going to question it much further. My mind is getting so vast with knowledge from all my analysis that I risk going into gridlock so things must be kept simple.

This confirms what a couple other more widely read bloggers have said about trading literally being 95% mental and a matter of how you play the game. I believe this.

However, I also believe the 5% needs to include a sound understanding of how price works and moves which very few traders I speak with have.

What is causing less edge on the ES? I believe it is do to the fact that there are so many players involved. Massive amounts of retail traders giving away money to highly complex computer programs run by quants who have virtually unlimited risk and capital.

Does that mean a trader can not win. Absolutely not. I believe some do.

However, I have NEVER seen a one contract trader do anything on the ES. I read about supposed successful ES traders who trade huge size and scale in and out say they could it one entry/one exit but there is not one single chart out there is cyberspace demonstrating this.

Everybody that is public takes small profits on 1/3, then takes off another 1/3, and holds the smallest portion of the position for the move. This is insane and I would like to see executions of this strategy day in and day out for a months.

I think is sells well and performs like crap. That is why nobody posts it. It does not hold water like most strategies. You need to be mentally tough, no mechanical procedure can make up for mental inefficiencies.

Once I acknowledged this, I started molding my own trading style to something that can perform while trading just one contract or using a one entry/one exit style with multiple contracts.

The ES is just too damn efficient right now and conflicts with my style.

By being too efficient, I mean that the opportunity to enter a trade and successfully exit with a booked profit on the ES is very limited and does not occur frequently.

Basically, there are limited wholesale opportunities and the efficient market corrects them quickly. You have to be extremely skilled to catch these inefficiencies. More skilled than I am to do it enough to make a consistent living off small size on the ES. Probably more skilled than I will be one year or even two years from now.

That is a tough admission to make. The caveat to this is that I am talking about winning with smaller risk.

I think I could stomp the ES if I could swing trade and had the courage to take 6-10 points risk frequently. I can not do that right now. I have limited resources and just plain have not adjusted to taking that kind of heat yet. I will over time.

This is an important statement...I think the real edge in the ES for a tight risk trader is a matter of 2 or 3 ticks per trade and it takes great skill to capture it.

I think a good edge can be produced consistently be either scalping rapidly and scratching often of taking large risk and swing trading. Nothing in between.

Thus, my attempted hybrid strategy and tendencies to mix and match big winners with smaller scalps is a dud for this trader with 3 years of experience. I think thing might be different in the future.

I thoroughly believe in the 10,000 hour theory that I will not get into now.

In conclusion, the ES has limited edge for tight risk and is extremely hard to capture (we know that).

The TF has clearer entries and produces more bang for the back. Most importantly, it forces a correction in my trade management that i can not make on my own.

STOPS

I get this question a lot and think it is best to keep my answer simple.

The best stop is no stop. Anywhere that YOU want to put a stop is where the price will likely go to prior to moving in your direction.

The market is designed that way. It is a big game of sophisticated machines trying to fake you out and take your money. They know exactly where you want to enter and exactly where you want to barf out of a position.

Stops are merely risk management tools. The best stop is to cut the trade once the overall premise has failed.

I hate when professionals say what I just said but it is true. This can lead to giant stop outs but will avoid pulling yourself out of many losers.

A more practical approach is this:

Use a very tight stop or a very large mental stop and nothing in between. Do not enter your entry order with a tight stop order. If you must have a stop enter a catastrophic stop.

Best Stop Advice I Received

Stop your self out, do not let the trade stop you out.

When you are ready to exit, let the current bar close and place your stop below that.

I Actually Give Numbers:

I know many just want a number so here it is.

If you had to pin me down and demand a number, I would say optimal stop on ES is 2.5 points and never less or 5 + points. Nothing in between.

Optimal TF stop is 12 ticks and nothing smaller, 22 ticks if you want to give it room, and 4 ticks below a retest low for optimal results. This much room can lead to a significant single trade loss though.

I really think stop outs should be manual and only after you trade is clearly not working. The most destructive thing early in my trading career was a mandatory 2 point ES stop. It caused me to take all my losses and get taken out of all my winners.

Remember that the price never does the same exact thing twice and is rapidly evolving. If a pivot is put in that is obvious, the price will often probe for stops 2 or 3 times before moving on. Often pushing deeper each attempt.

My Project

I have shifted my trading operation to refining the way I exploit the inefficiencies of the price. Period. This can be ticks on a fast time frame or a swing trade on a large time frame.

Once you have a sound understanding for structure and direction, you still have a long road ahead in learning how to engage the other players and actually booking a profit consistently.

The odds are stacked way against you even if you trades have a built in implied edge. This is due to the mental aspect and the winners on the market know exactly how to exploit that.

I am working on finding a way to manage these inefficiencies that has the least mental difficulty in execution. Once this is achieved, I will start accomplishing my goals.

July 28 2010 Overlay and Trades

Very interesting prep overlay today.

My hold visualization and breakout down visualization were the exact length and volatility. The interesting part is that the price followed both closely. Resulting in both a short and long bias.

I had a long and short execution box at the same exact price. The only difference between the two was what the price action did in the extension area.

I am pleased to say my plan held up and produced the correct bias. If you look at the hold (long) bias, the visualization includes one thrust down and return back above the 1106.75 inside support area.

The short bias visualization includes an extension retest (double bottom) below the inside support area and move back above. This is what actually happened. It is amazing to me that my AM reflection and visualization focused on this area and actually produced a pattern in my mind in advance that I was able to draw.

This allowed me to subsequently act on what I saw. This is a powerful concept and demonstrates what constant focus and visualization can do.

However, I did not execute perfectly. This is the other part of trading and much more crucial to ones success in my opinion.

First off, I executed on the TF first since the ES was grinding. You can see that I initially took a long even though the trade was in the middle of the short scenario.

I think this was over aggression due to the action being relatively slow. I did not realize the short pattern was filling exactly until I was talking about it with another trader on Skype.

It was like my subconscious inadvertently stuck the thought out there as I was typing a message about what I thought about direction.

I immediately stopped out my long on the TF and shorted the ES, followed a few minutes later by a short on the TF.

I did not feel great about the long but there was a zone there. I had clarity about the short.

This is what me being a successful trader will come down to. Will I have the discipline to wait for the clarity and be able to separate clarity from deceiving patterns.

The game players know what we look for and will create traps that look good. My gut can filter most but my current battle is making my mind catch up.

There are some very sharp skills showing themselves lately but they are tough to reign in and organize.

July 28 2010 ES Prep posted

Price is sideways 1116.50 - 1106.75 with an upward bias. Premise is for sideways contraction between this area until breakout. I have illustrated pattern inside structure that I will look for in order to catch a breakout out of this area. Going to play the oscillations until then and stay out of the mid range. Price is still overdue for a downward correction and short side will be prone to constant squeezes

July 27 2010 Overlay and Trades

I have had a few request this week talk about the differences between the ES and TF and why I have started trading the TF.

I will do a detailed post on this subject tomorrow.

Today's post will be mostly charts. I did not have any ES trades even though the read was solid. We had the 1106.75 inside support zone identified but I did not hit it.

I have been focusing on very high probability entries lately and that requires a retest pattern entry. I more courageous trade would have been to bid into inside support and trust the premise of a sideways contraction after yesterday's trend.

I had a decent TF day. It is interesting that I have been finding my best rhythm and feel by not hitting the initial AM move (which is usually the largest) but hitting the clear pattern entries once I am extremely confidence in bias after the pull back or congestion.

More on this tomorrow. I traded a cup and handle pattern today. You can find this in any tech analysis book. Cups are good long pattern entries and occur frequently. This was a good one and they rarely fail if traded with the correct premise.

I posted a couple charts highlighting the pattern. One is the hard right edge I took a snapshot of just after the entry.

July 27 2010 ES Prep Posted

***UPDATE to prep 9:15 AM EST....I keep illustrating a test of potential inside support but the freight train continues to drive up. The price will need to come back inside 1116.50 resistance and push through 1114.75 to have any chance of a correction. If price bounces of 1116.50 or just pushes up from here, I will go with the grind up and attempt no shorts until a lower low is put in.

Premise for today is similar to the past week. However, there will be a higher probability of a pull back prior to a continued attempt up. I will look for inside support at 1106.75. This is deep inside support coming off a stretched leg and will be prone to create a sideways market 1106.75 - 1116.50 prior to breakout. premise is the if price does not pull back as it has not for the past week, continue to hit continuations on the grind up, if 1106.75 does not hold, look for test of 1099.50 and tough action in that area. Price continues to be stretch and is due for a correction but has enough steam to push to 1150.00 from here. The short side will remain tough. Keep in mind that it is not worth repeatedly getting stopped out on the short side to hit the one correction down. This action is prone to squeeze.

July 26 2010 Overlay and Trades

Once again today the price did not come back and test inside support. It has been the same thing almost everyday and I exploited it today.

The read was clear in the prep overlay. Either test inside support and have a higher probability for a downward correction or no test of inside support and grind up all day.

The cause of the type of action we had today gives an opportunistic trader an opportunity to fade what all the retail traders are doing.

This action is the result of retail trades fading the move up over and over again. When they enter short, stops are placed above the action which creates liquidity that the price is drawn to. Thus the shorting actually adds to the liquidity on the way up.

I was able to enter multiple longs on the TF even the the price was stretched. My trading style at the beginning of this year would have had me looking for inside support and then trying to fade or wait until a significant pull back on a day like today.

My trading has evolved more towards exploiting short term opportunities than hitting structured setups. The combination of a clear bias from no test of inside support and good feel about direction kept me out of trouble today.

There was one point where I was strongly considering a short at about Noon EST today when a clear bearish wedge had formed. I did not try to front run it and waited for confirmation.

Then, one simple 3 or 4 tick thrust up prior to the entry confirming made it clear that I was not even going to consider shorting this move up today. It was an example of old bad habits trying to manifest but feel and clarity taking over.

The other notable observation today was that again the TF had more than twice as much volatility as the ES. On the fast time frame I was trading, it looked like a freight train even though it was a steady grind up.

My feel and premise allowed me to see it for exactly what it was.

July 26 2010 ES Prep Posted

Same premise this morning as we have seen for the past few weeks. Looking for potential inside support and continuation attempt up. Must be aware that price is coming off key 1100.00 area so will need to confirm potential inside support at 1093.50. Market is stretched to the upside. The theme over the past few weeks has been for price to take off prior to testing inside support or to break inside support and correct down. I will be watching 1093.50 closely. If price extends 1099.25, look for a grind up to 1116.50. If 1093.50 does not hold, I will look for a test of 1085.00 and be ready for a deeper correction down.

July 23 2010 Overlay and Trades

Almost the same post as the others this week.

Continued aggressive winning on the TF and lame action on the ES. The divergence is amazing.

The main difference between the two is less games on the TF. The main difference in my strategy is that I have been simply hitting pull backs and covering quickly then looking for a re entry if my premise remains in tact.

While I missed out on larger moves by covering early in some setups I also scalped others that would have been BE or losses in the past. The tighter exits are higher probability and gives the market manipulators less time to shake me out of a winner.

I do not have much else to add other than some speculation about this weekend.

The price structure is overwhelmingly up. Usually when I see a contraction at the highs I expect a major gap up.

Also, the structure on the higher time frame is extremely bullish. If the price pushes much higher, it could accelerate up and easily test the 1210 area.

However, I will look for some bad news or other primer this weekend to cause a big gap down for Monday. The price rarely does what it looks like.

Let's see what happens.

July 23 2010 ES Prep Posted

Premise for today is to see if 1099.00 holds or not. Structure is very bullish but price is due for a correction. I see potential scenarios. Either 1099.00 holds and prices moves down to test the 1059.00 and goes sideways with an upward bias or price extends 1099.00 and make a major move to the upside. Today I will watch the 1099.00 area closely and look to fade failed extensions and buy any inside supports that develop. The short side will be tough with the upward structure. If price does start selling, I will wait for a lower low if I do not hit the failed extension and the execute continuations to the next support level.

July 22 2010 Overlay and Trades

I had the ES early AM inside support pull back identified to the tick but did not take any ES trades.

The 1073.25 inside support area from the prep was hit prior to the open and I do not trade prior to the open. After that, there really were not any good entries for me.

A powerful observation I will share about AM inside supports is that if the inside support is hit prior to the open, it will either just take off and extend a vast majority of the time or come back for the retest and break the inside support level.

This means the zone is far less trade-able if it is tested prior to the open. Usually what happens is that it will extend and move back above the inside support like I like to see but then fail and sell off.

Based on my communication with several other traders throughout the day, there are not many that even hit the inside supports. Especially the blind ones. I think they are powerful areas to trade.

I had 4 longs off the 628.00 area on the TF and went 3 for 1. The stop out was inside where I would usually place a stop but my tactics are different with the TF.

I would rather cut the trade with a small loss (shooting for 1/2 unit) then take large risk. This means I have to play for accuracy. I am OK with this because I have a significant edge on the TF and trade a very fast time frame which gives me plenty of opportunity to fight back.

There are times when I need to hold however. My entry after the stop out for example required more room than the initial entry. It was two completely different types of trades even though they were essentially at the same price and time. I am not going to get into the mechanics of that tonight.

I started to think this evening that it is possible that the intense visualization and depth of the morning prep may have been causing problems with my ES trading. I have not completely thought it through yet but am going to review.

I am certainly not looking too hard at a higher time frame on the TF. I am using the ES as an anchor of sorts though.

July 22 2010 ES Prep posted

Overall range 1063.25 - 1085.00. Premise for today is to look for potential inside support at 1073.25 and see if price will remain sideways or make an extension attempt to 1099.00. There is an upward bias with the lower highs in place below and I will look for a test of 1099.00. if price fails at 1085.00 and inside support 1073.25 does not hold, look for test of 1061.25 and likely push to 1055.00. Bias will remain sideways to up as long as 1055.00 holds. If 1055.00 breaks, I will be looking for a significant downward move.

July 21 2010 Overlay and Trades

I had another ES TF divergence today. It was partially due to the fact that I was mainly focused on the TF for most of the day.

I was down 4 points on the ES and up 45 ticks on the TF. The net on the day was only equivalent to 2 ES points after everything.

The important thing is that my edge on the TF is more than making up for my draws on the ES. This is a major clue in my search for the overall divergence in my reads vs. performance.

I am convinced it comes down to raw edge in exploitative opportunities simply being more difficult to catch for me on the ES right now.

I am fairly certain that the reason is mixing and matching my exit areas (scalp or hold for target). I think one or the other would work for me but my blending of strategies is causing me to actually scalp down equity on the ES.

So I will focus on the TF for now and phase out my trades on the ES. I am still going to trade both even if my ES trades are sloppy due to less focus because I am net profitable with what I am doing right now.

I will likely move to more of an intra swing style with the ES and hedge on the TF. I am betting that the TF scalps will outperform the ES swing trades.

I think this is simply a matter of less games being played on the TF. It is less packed with automated sweeps and other traders pushing the price around trying to trap retailers prior to a move.

The difference is a small one but enough to magnify my edge significantly.

I will continue doing ES preps because I think the ES is more representative of the overall market. I do not do as much visualizing on the TF.

This is because the overall major SR zones are not a significant factor in how I am executing the TF.

July 21 2010 ES Prep Posted

Premise for today is to look for a pull back to potential inside support at 1070.50 and a congestion with a sideways to upward bias. Price is close enough to 1100.00 to get pulled up toward that area for a test. Price is stretched in the and going to be prone to move sideways or grind up. If 1070.50 does not hold, look for test of 1055.50 and potential continued correction down. This is a key area. If price can not get to 1099.00 it could roll over hard. If price tests the 1099.00 area and is able to build inside structure and extend, I will be looking for a powerful continuation up past 1120.00.

July 20 2010 Overlay and Trades

I had another day with interesting divergence between my ES trading and TF trading.

I was down 2.75 points on the ES and up 3.8 points (38 ticks) on the TF. For those not familiar with the TF the net gain on the day is equivalent to a approx. a 5 point gain on the ES.

TF = 1 point = 10 ticks. Each tick = $10.00 per contract.

The overall direction and macro structure of the indexes is generally the same but I am finding significantly better setups as well as intra trade action on the TF.

I speculate that there are less games being played on the TF thus less fake outs. My first trade today on the ES was my only loss and it was a total fake out. Not a bad bad bet though.

I have revised my trading down to a game of trying to exploit short term opportunities and avoiding getting squeezed. Even trying to ride the squeezes.

I am still visualizing and watching my zones but it is more important to me to consider what others are doing and where they are getting trapped regardless of bias or direction.

I told another trader yesterday that my TF trades look sloppy but produce a constant edge and a majority of my ES trades look very well executed but frankly suck when it comes to production.

I can win playing the ES but have not come close to hitting my goals do to conflicting strategies and mental issues.

It is my opinion that the intra day opportunities on the ES for those who want to trade small size and risk less than 5 points per trade are frequent small scalps (3-10 ticks) that take extreme skill to consistently book.

This is after months of awesome preps and spot on visualization resulting in virtual equity gridlock.

I think that for some reason, the ES right now is a tough mountain to climb in an already extremely tough line of work. I would probably do much better swing trading it with big risk and big reward but that is not a game I can play right now.

So am I divorcing the ES? Right now I am trading both but there will be a separation until I start holding positions overnight.

Today

I had 3 long attempt on the ES after getting stopped out on a lower probability short. That is 3 long attempts in front of a 20 point run up.

I was waiting for a more structured pull back. This is the issue I have been having lately on entries and exits. If I wanted to catch the ES move, I needed to hold and risk 5-7 points with no anchor other than the extension bottom.

Realistically, the best ES long was my short stop out exit price.

The TF provided no clear entry off the lows but offered several good inside support trades and continuations on the way up. The trades tend to work or quickly fail and there are far less fake flash orders and depth stacking which is a nuisance to an observer of details like me.

Keep in mind however that the TF is not for timid traders or those who do not understand where the price is prone to squeeze. It can stomp you quickly if you stay on the wrong side for too long.

For some reason, that type of action better suits my trading style. All this analysis just after a couple days.

We will have to see what happens when things get ugly. It is certain that they will.

July 20 2010 ES Prep Posted

The 1055.50 area we were watching yesterday was tested overnight. Premise for today is the same as yesterday. I will watch to see if 1055.50 is going to hold. If it holds, look for test of 1069.50 and continued sideways action with a downward bias. If 1055.50 does not hold, look for test of 1044.50 and likely sell off to 1036.50. There is nothing but air between 1055.50 and 1044.50. A break of the 1055.50 extension area could lead to a quick sell down to 1044.50. Overall, the indexes have put in a major lower high and will like to either extend down past 1000.00 or put in a large contraction before deciding on a direction.

July 19 2010 Overlay and Trades

Another trader suggested over the weekend that I start trading other contracts instead of the ES.

I have been been trading the ES almost exclusively since the old ER2 converted to the TF in 2008. The reason I have been focusing on the ES and reluctant to move into other contracts is that I feel that my feel is extremely sharp for the ES.

The way I look at structure works for anything that can be charted but each contract has it's own rhythm. My premise was the once I was acceptably proficient with the ES I would open up into other instruments.

Lately I have been in a state of gridlock with the ES. While I have many excellent reads and trades, the edge has not been anywhere close to where it needs to be.

I have been reviewing, reflecting, and evaluating almost non-stop for the past 6 months trying to figure out what my problem is.

I said out of frustration over the weekend that I believed the edge right now in the ES is extremely small. Even with premium entries and good reads. It is hard for me to say that something is just simply too difficult or in a state that is almost un-tradable.

I am not wired that way. I believe anything is possible with effort and focus. However, I think there is some relevance to my premise to the extend that there is likely very little edge in the ES for me right now.

Meaning that with my current mental state, strategy, and skill level, there may not be much I can pull out of the ES.

My premise is that the edge is extremely small due to the massive amount of strategies being executed and games being played. Meaning that I can enter at the right areas but have a reduced likely hood of a consistent (non - random) exit.

My gut tells me that to be consistently profitable on the ES, one needs to swing trade with large risk or scalp frequently taking 3-6 tick profits and constantly scratching and re entering.

The few traders that publicly speak of being profitable on the ES are scalping in sequence for small profits while constantly scratching and re entering. I think that is a good way to tackle the ES but requires an extreme amount of skill and also the ability to scale in and out which I do not want to do.

I still do not see anybody else claiming profitability showing their trades consistently so who knows what is really going on.

I was executing on a 100 tick TF chart today but plotted the trades on a 200 tick so they would fit.

It was interesting because I had virtually the same trades but the TF trades setup more clearly and traveled from point A to point B more cleanly.

The is the big advantage I see. The price traveling from point A to point B more cleanly.

There is far less liquidity and seemingly less games being played. I will try to elaborate on this more later in the week.

There is a huge amount I could say about this. More than what most will take the time to read about.

July 19 2010 ES Prep Posted

Premise for today is to see if 1059.50 - 1055.50 holds and look for potential sideways congestion 1055.50 - 1069.25. There is potential inside resistance at 1069.25. If this holds, bias will be sideways to down. If 1069.25 does not hold, look for test of 1079.50. I will be looking for a test of 1036.50 over the next few days and will have a short bias as long as the price remains below 1079.50. Strategy for today will be to initiate shorts at good prices prior to the move and do not chase. I will play potential squeezes to the long side.

Reply To A Good Question About Prop Firm Regulation

This is my personal opinion and I am not representing anybody I am affiliated with. I have not stepped into any issues on this blog other than technical analysis before but maybe I should start.

Hey Brian,

I was wondering what you and your firm's take on the recent Steven Schonfeld letter on the troubles of prop traders?

http://notablecalls.blogspot.com/2010/07/schonfeld-letter-to-traders-it-is.html

Hello. I can not speak for the firm but my personal opinion is that this has nothing to do with legitimate prop firms who do not take deposits from traders.

FINRA is a self regulating body for FINRA firms. This is not "new legislation". They are concerned about sub accounts in terms of customers opening accounts and having a registered rep trade their funds.

Prop trading has nothing to do with that. Somebody who has capital has a right to let others trade it privately. The regulation comes in when you accept other people's funds to trade on their behalf. It is apples and oranges.

This looks like to me compliance attorneys once again creating paranoia so they can steal money from businesses. It is pathetic and I am fed up with those who have no talent and no ability to earn from hard work living off the fruits of those who produce.

Schonfeld and others are just trying to protect their money as everybody is being forced to do in this environment of stealing.

Unfortunately, it is affecting those like us who are trying to produce and make a legitimate living.

July 15 2010 ES Prep Posted

Premise for today is to look for test of 1101.75 and see if it holds or not. If 1101.75 holds, look for test of 1084.50 and potential sideways market 1101.75 - 1084.50. If 1101.75 does not hold, look for continued tough grind up until correction. If price tests and extends 1084.50, look for correction down to 1073.25 and potentially more significant support at 1063.50. Price is very stretched and due for a correction but I will stick with the trend until clear short side structure comes in. The short side will remain tough and prone to squeezes. There will be a good downside correction soon but I will be careful not to take losses constantly fading this move looking for the one good correction. If price starts to trend back down, then adjust.

July 14 2010 Overlay and Trades

My read was off this morning and it really showed this AM.

I have said before that anytime I mess with my zones while preparing the prep that there is something off.

I moved the 1091.25 resistance area to 1089.50 but the problem was that support was at 1085.00. I had a tough time with my zone reconciliation because there were multiple oscillating bounces and support areas between 1063.25 and the Globex high.

It did not look right and instead of taking the extra time to visualize I produced a cookie cutter zone. This is not typical of how I conduct the prep.

I played the manufactured 1089.50 potential inside support and got chopped with 3 stop outs. I managed them tighter than usual so the net result was not too bad. I knew something was off and should have waited for a clearer setup.

The only trades that were according to plan were the first and the last. I was looking for a short squeeze all day and had a decent plan but I was chasing the entries.

It will never work to chase a squeeze. You need to be in prior to the squeeze or you miss it. If you are able to make a late entry, you become the squeezee.

Action was ridiculous and there was no follow through to the upside as should be expected in this stretched trend up. The short side was also tough as noted in the prep.

I am down a couple points on the week and need to exploit what I can over the next 2 days.

July 14 2010 ES Prep Posted

Premise for today is to watch for test of 1101.75 and see if there is a reaction. Trend up is very powerful and has not made a significant pull back in days. I will look for potential inside support at 1089.50 just after the open and an attempt to run to 1101.75. If 1101.75 holds, look for a range 1101.75 - 1089.50 with potential contraction at highs until breakout. If price comes off 1101.75 and builds inside support, go with the trend and extension up. If 1089.50 does not hold, look for correction down to 1080.00. The short side will remain tough to hit and shorts need to be initiated at good prices. Late shorts with too much confirmation will be prone to get squeezed.

July 13 2010 Overlay and Trades

The powerful trend up continues.

My premise today was for an upward bias with a warning that shorts would be tough. It is interesting that my only trade today was a short.

This lead me to start thinking about what it is that I am looking to trade. I have a good read that is correct a vast amount of the time. However, I am still able to put together a series of losing trade sequences.

I came to an interesting conclusion:

Most traders, including myself, spend a majority of their time focusing on where to trade. For example, a specific price or S/R zone.

I am beginning to see that it is much more important relative to achieving a positive outcome to focus on when to trade. By when, I mean timing the entry and timing the exit, not anything to do with time of day.

I by at an extremely good price and the price can move up to achieve a 4 point excursion. However, if I do not properly time the exit, the price could come back and retest my entry. Leading to a break even or a loss.

Likewise, if I exit immediately after I achieve a few ticks profit all the time, I will never be able to overcome my much larger losing trades even with a high winning percentage.

It is the timing of the entry and exit (the management) the drives success or failure.

I could take this a step further and say that on days like today and most other days, the best setups (for timing) are not going to happen in the direction I would like them to.

Otherwise, the market would not be efficient and these obvious setups would be exploited. The more probable occurrence I see intra day is that the opposite of what looks like is going to happen tends to happen.

This is a game of convictions constantly getting tested under pressure of loss with fake outs and illusions.

So today, even though I had an overwhelming long bias and warned about not taking shorts, the only setup I saw that was indeed trade-able was indeed a short. This is what I was able to exploit even though it was opposite my bias.

Any long I would have attempted other then buying the 4:00 AM inside support zone would have been a discretionary entry that was all feel with no defined risk. A trader can win by doing this but it is not my plan right now.

It is important for me to start thinking more about what I can exploit and when to do it as opposed to only where to execute.

July 13 2010 ES Prep Posted

Price continues to press up. This area is tough for resistance and structure. Inside support at 1073.25 was hit overnight and 1079.50 has been extended. Premise for this morning is to see if price pulls back and holds at 1079.50 then continues to grind up. If price pull back inside 1079.50, I will look for a test of inside support. I will watch this area closely because 1073.25 has already held and will be more prone to break on a retest. I will expect at least a wash prior to a reversal. I will stay on the long side as much as possible until the price shows a clear reversal. Market is due for a correction down because it is stretched but the short side will remain tough.

July 12 2010 Overlay and Trades

I was looking for a retest of 1063.25 just after the open but the price just grinded up and gave me no opportunity to get long.

I ended up executing a shallow retest pull back that was lower probability but within my plan. It was stopped out the price contracted for the rest of the day.

I took a shot at a perceived upper trendline of a symmetrical triangle forming late in the day and scalped it due to my 2-3 point open equity booking requirements.

There was a re entry attempt but I scratched it after the contract developed a nested contraction which invalidated my premise.

We did get the test of 1079.50 I premised for after the close. Let's see if it continues up or follows today's prep visualization and retests 1063.25 again.