shodson 

The only live-money automated strategy that I use is for fading gaps.

Here is the chain of emails I usually wake up to when the gap is faded. I'm usually asleep when this happens, but today I was up early and was watching it.

Wednesday, September 21st, 2011 - The gap setups were somewhat favorable, but the zones I liked were too small to trade in the ES, so I set up to fade the YM, which had a wider, more favorable zone if we opened below yesterday's close but above the lows of the day. However we opened above the close so no gap fade trade was taken. However, I did get a signal to short the first-hour range and picked up some ticks in the TF.

TF: +36 ticks

Looks like my short got a little help from the Presidential drop.

Thursday, September 22nd, 2011 - The gap guides were mixed and we had a huge gap down. It looks like Scott@MTG faded the gap with a small position for the reasons he mentioned (see attached gap-play image). I hope it works out for him.

Also, the first-hour guides were a mess too so I just decided to stay away.

I would normally think about selling a rally on days like this, but the last few times on big down opens like this I've been eaten up trying to short the market on a rally after the open, so I just sat on my hands and got on with my day. However, after listening to CNBC/Bloomberg on the way into work the fear is really palpable, but that may mean it's even more reason to get long.

NO TRADES

Odds of fading gaps on a Friday after a 2+% drop in the market, and below the 200-day moving average.

Friday, September 23rd, 2011 - The odds of gap fading were very good below yesterday's close. However the D-OC zone in the ES was very small, which meant it was a near doji. However the NQ had good probabilities as well but with larger zones so I had a better chance of getting a tradable entry. It looks like I got 6 ticks of slippage, but thankfully, things worked out well for me.

I later took a TF upside first-hour breakout, also based on good probabilities but I later realized I was taking more risk than I should have as the breakout wasn't confirmed by any of the other indices, but my greed light was bright because the TF setup looked so strong on an individual basis. So I decided to manage the trade by moving stops instead of leaving a static target/stop. It was a good more as it came close to my target, but then it turned to the downside and I got out taking away 43% of the original target.

NQ: +72 ticks
TF: +19 ticks

The meetup last night went well. We had 11 people and went 1hr over our normal time. Many people came in and shared some winning and losing trades they have recently taken.

The developer of apaZones came in and talked about his supply/demand zones for very small risk/large reward trades and it looked really interesting. We talked about "when price hits a zone, how do you trade it?" and the main answer was to look for price action chart patterns around the S/R zone to take your trade, usually with very small stops. He particularly likes ABC patterns at or near the zones, and plans to add ABC pattern recognition around the zone to the indicator.

A local professor of math and computer science came in and talked about how he uses bond yields and other money market flows, like the PTTRX, to predict how the market will perform the next day, and how he is yielding 50% a month with a long-only strategy in biotech stocks using these correlations. He doesn't look at any charts (really naked!), he purely trades off of his spreadsheets. His exits are time based, and he's found that it's best to exit at a 5% stop loss or after 6 days in the trade.

Of course, I take all of these claims with a grain of salt but the information was shared with no sales-y fanfare or egotistical braggadocio so I at least think it's worth further review.

PS - Registration is now open for my futures.io (formerly [AUTOLINK]BMT[/AUTOLINK]) webinar.

shodson 

decided to manage the trade by moving stops instead of leaving a static target/stop. It was a good more as it came close to my target, but then it turned to the downside and I got out taking away 43% of the original target.

Looks like I was wise to manage the trade: I would have been stopped out as price retraced and never moved higher.

Monday, September 26th, 2011 - Gap guides were strong in a few zones, but we opened in the U-H zone so no trades were taken. The 10pt gap filled very quickly and easily from the open. MTG did an interesting research that shorting up gaps the day after an inside day below the 200 and 10 MA had very high profit factors, but the sample size was pretty small so not enough to bet the farm with.

Then I started looking for some other trades. I saw CL coming into resistance so I got short near the top of the area and put my stop 1 tick above the zone high. I then raised my stop another 4 ticks as CL will often make head fakes. Well, it did just that, enough to stop me out still, THEN it turned around and hit my target on the EMA(20) a boat-load of ticks below. I later thought about re-entering short on the LL but I felt that would have been a revenge trade and it wasn't part of my plan so I did not do that.

The first-hour guides had good setups below the lows in TF, but we were also in a support zone from the overnight session (based on the 60min chart), so I was a little worried about that. It got near the bottom but then turned around so I never was filled. Then I watched the ES and the high breakout looked good, but it was also coming into resistance and had moved straight up so far until then. I thought it would need a pause and resistance would weight it down so I decided to get long on a pullback if the FH hghs were broken so I get reduce my risk to 1:1. Good thing I did as I got a full stop out as it never moved much higher above the range and later stopped me out.

CL: -19 ticks
ES: -32 ticks

First of all, nice thread. Very professional and very well presented.

Second, I have a stupid question. On the CL trade you were stopped out on, is there some reason you don't look for the kind of entry you were tempted to revenge trade on in the first place instead of "catching the rising knife" as you did?

It seems to make some sense that if you are looking to short an area, most of the time that area will provide you with the type of second entry you did not take.

Just wondering. I know this is "confirmation" but it seems to make some sense to me instead of just arbitrarily selling an area.

PandaWarrior 

First of all, nice thread. Very professional and very well presented. Second, I have a stupid question. On the CL trade you were stopped out on, is there some reason you don't look for the kind of entry you were tempted to revenge trade on in the first place instead of "catching the rising knife" as you did? It seems to make some sense that if you are looking to short an area, most of the time that area will provide you with the type of second entry you did not take. Just wondering. I know this is "confirmation" but it seems to make some sense to me instead of just arbitrarily selling an area.

Thanks for your kind words.

I liked the trade because I could get in with a small risk/large reward. If I had waited for confirmation then I would have had to have a much larger stop. However, I do see your point and perhaps waiting for a reversal signal in R/S would provide better probabilities, but with larger stops. I'm still trying to work out the best way for me to trade R/S. Thanks for the advice.