August 30 2010 Trade Review

I think this post is a must read for the week and will be in the key recent post section.

Today was one of my better trading days in terms of decisions and convictions.

I was thinking on Friday afternoon that the market would have a nasty gap down over the weekend. This was not based on structure but do to the fact that everybody seemed to close out last week and the price tends to punish those in the majority.

When I saw the big probe up and return back into the highs on Friday, I immediately felt a short bias and had a clear premise.

Also, I could not visualize the price selling down then reversing back up to retest the high. That would create a "U" or horseshoe like pattern and I very rarely see that.

Lately, I have been doing very little prep in terms of SR zones and specific pathway visualization. While I nailed these day in and day out the result were divergent from the reads.

I suppose it is a prep mutiny of sorts. I think I may have been focusing too much on macro direction and not enough on player interaction.

I still have zones that I watch which are very powerful and I still visualize. My visualization is quick and sharp. I have what I need after a quick glance of an ES 4000 tick, 60 minute, and 900 tick in no special order.

It is not enough to know where support and resistance is or to have pattern recognition at these areas. I have started watching a couple more elements even more closely.

The most important being having an understanding of what most of the retail traders are doing and taking the opposite trade. I am looking for the traps and fakes that I have spent the last few years getting into, usually via poor exits, and doing the opposite.

I will elaborate on this much further at some point in the future.

Premise Over Pattern

This is the single most important element to the last couple month's huge improvement in results.

Today is the best example so far. The price traded down to shallow potential inside supports just after the open and was stretched.

Many traders were looking long. There were plenty of reasons to get long. I had several including pattern confirmation and attempted inside higher lows temporarily. I literally had dozens of good long setups today on both indexes.

However, my gut and whatever trading wisdom I have managed to gather in thousands of hours of screen time kept telling me to short regardless of pattern. This was tough because as many know, I do not prefer the short side in this environment.

Today was different though. There was clarity in in direction via my feel. I can really feel a massive difference in how I look at things. The giant overnight upside probed helped as well but again patterns are not enough. There must be feel so there can conviction.

Without conviction, even the correct trades will not hold up enough to survive the constant assault from the bullies who move the market.

I hit the first short on the ES a little after the open. The entry felt awkward and too shallow but the direction felt right. Then the price did nothing and started to look like it would squeeze me.

I had to stick with it. I ended up cutting the trade too soon with a small scalp then re entered an even more stretched leg. I simply made the decision to trade my conviction which has been happening more frequently.

Things got tough during this trade as I saw a ridiculous long setup on the TF. I cut the ES for a 1 point loss and got long the TF. It did not feel right even though the long pattern on the TF was perfect.

As soon as it moved against me, I decided to do the right thing and stick with my conviction. I shorted the ES again, then cut my TF trade for another small loss and added to the position by shorting the TF. I had some entry cost but improved my ES position a bit.

This was a very tough trade and a defining moment as their was a cup forming on the TF. These almost always work but I faded it and had confidence even though it looked like I was going got get run over.

I told another trader on Skype that most retailers were getting long and that was why the price was not moving. Then I gave my premise which was the market bullies are trying to get as many long as possible so they can take the price down.

That is exactly what happened. I talked through it play by play. Reiterating that the structure and even tempo was against me but I was sticking with my premise.

This was trading at a much higher skill level than I have been at previously and felt very natural.

It is important to recognize exactly what I did today in terms on decision making and not let it give me a big head or a license to start fading every pattern I see.

There was much more to it. It was a very complex engagement on many levels but I also kept my thoughts simple and orderly. It was a precise interaction with the market in an intimate level.

That is what it took to make the right trades today.