September 15 2010 Trades and Comment Responses

Anonymous said...

Keep posting Brian there are plenty of us reading your blog religiously! Thanks for contributing to the trading world.

September 14, 2010 11:34 PM

Anonymous said...

Hi Brian - I have noticed that lately the TF chart is under performing the ES in terms of movement and what is a cleaner chart to read (IMHO). Any thoughts on this? I moved from the ES to the TF as the ES was beating me up and did better in the TF but now noticed that the ES chart (using tick charts) has been cleaner. Yesterday intraday range on the ES was 12.25 while on the TF it was 8.5 which seems out of whack. Is this just something that is going to fluctuate from time to time and to be expected? I'm also asking myself if it's a case of the grass is always greener as well? Any thoughts philosophical or technical appreciated. Thanks

September 15, 2010 4:12 PM

Comment 1:

Thanks for your comment and support. It is extremely motivating to see that others are following and helps me to continue building the new site.

Comment 2:

I agree that the action in terms of data display patterns has been cleaner on the ES.

The TF was producing constant symmetrical setups that were very clear throughout July and early August while the ES was producing tough trading as it has for most of this year.

However, a few weeks ago, the TF became fairly irritable and started producing a lot more noise. Since then, the ES has actually been producing clearer setups and I have been executing more frequently there.

It is very rare for the ES to have a wider range then the TF as it did yesterday. The TF still offered more equivalent volatility as the 8 point TF range is equivalent to 16 ES points.

The TF also traveled more "nautical distance" in terms of movement from point A to point B.

If you look at my trades from yesterday, I took the same trades on both indexes. Some think this is doubling up on my position but it is closer to trading 1.5 X my regular size.

I was up 49 ticks on the TF which is equivalent to almost 10 ES points. The same trades on the ES only produced a profit of 3.5 points.

It is good that you have enough feel to use words like "cleaner" to describe price action and I concur with your findings.

If you only want to trade one of the indexes, I think there is much more opportunity on the TF. As short term exploitative traders, it makes sense that less liquidity should offer us a better edge.

However, I have been enjoying hitting the ES with my new techniques because the traps have been so clear to me. I can see them well in advance and instead of avoiding them, I mirror the positions the game players are taking.

Volatility and Risk/Reward

There are 2 factors to consider when choosing between the TF or the ES.

1. The TF offers a lot more bang for your buck but also requires more risk and better trading skills. Average risk on the TF if you want all your correct trades to work is 30 ticks in my opinion. Your average loss should be significantly smaller than that but many trades on the TF will push most traders way beyond their barf out points.

This is especially true pertaining to inside support zones after approaching a resistance area on the TF. It is very prone to start holding and even building multiple pivots with the intent of getting retail traders long at the area for an extension out only to violently push down 30-60 ticks to jam all the late longs as well as those who are greedy and holding too long.

This is merely a trap that is planned and set by New York traders who know what they are doing. It is an easy turkey shoot and an efficient money grab.

Many Fibonacci traders would call this a 786 replacement. Fibonacci levels are only a description of an effect of price action after the fact and have zero relevance as to what is actually occurring in my opinion. It is interesting how reality and hindsight theory blend together sometime though.

2. The ES requires less risk but sets many more difficult traps for retail traders. I suspect that this is simply because there is far greater liquidity and many more players on the ES.

Also, the slower pace and constant grind make traders prone to make more mistakes as well as have bad judgment.

These layering factors make the ES more difficult to trade even though the pace is slower and risk is less.

From the mental aspect, when I have a tough trade that I know could take a lot of heat, I still execute on the ES first. This is because there is a perceived sense of less pain on the ES when in reality, the opposite is true.

You can tell when I am most questionable about a trade when I enter the ES first then follow with the same trade on the TF.

The TF tends to lead the ES, so when I like a trade, I hit the TF first then add to the ES once the TF shows that the trade will likely work.

I play off both indexes and have a very efficient system (mental rationale and feel not rules) for effectively exploiting the opportunities provided on each.

New Technique

I could take analysis of the correlation and relationship between these two indexes to shocking levels after all the live research I have done.

The interesting thing is that while attempting to explain and justify the way the price moves and reconcile the difference between what is seen and premised and what can actually be executed, I have refined a 6th sense that just allows me to "look" at the chart and know what to do.