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Catching Big Waves - a trader's journal of surfing the the markets
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Catching Big Waves - a trader's journal of surfing the the markets

  #2971 (permalink)
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I took a trade today that I consider a setup that I know very well. But looking at it now, I traded all day looking to buy. I did wait and find the very few opportunities there were, but the question I am asking, is why was long my direction?

I think it was the major gap up, and then expecting some support zone to take hold. But I saw this morning that while ES and 6E had gapped up wiht a higher high, CL was a weak local DT, and even commented on how I was not thrilled to be a buyer with that hanging over the chart. My 6 range chart kept me out of trouble, telling me when I could buy, but it also todl me far more times I could sell. But I did not go short once. Bizzare.

I still question the gap up. That was intense, and across the board. Was it a pure manipulation move to get the market back to a liquidation point? Was there really that much of a variance in interpretation over the Spanish bailout funds over the past 12 hours? Have I completely lost it?

I felt a high "confidence factor" in my trades, based on seeing a pause at areas that held the question of support. Whether they trun or not, for some reason I have always been drawn to the areas where it might, and that also means areas of a lost of volatility, quickly. But what about the "slow leaking market" that Hedvig mentioned? Why do I shy away from those areas? Why do I chose the war zones?

I know my obsession with pinpointing turns is a part of it, but why?

I think it goes back to my training with ATW and I ran with it from there. We always used "zones" to trade off of, and it was common for most traders to prefer the first trade "out of the zone", because one might believe that is the sweet spot, the place that offered the greatest reward to risk. If I rode them for 100 ticks maybe, or traded with a 12 tick stop... But today I went roughly 20 vs 35. What is there so incredible about that? Anything?

I have wrestled a lot with the difference between understanding what my skills are in readin a market versus whether I would choose those specific skills. I have thought I would prefer 30% odds at six to one over 60% odds at two to one, but that is not the skill set, the mental preparedness, that I have developed for some reason. And when the market is on, I drop into a zone where my experience takes over. But in the silence between trades I question it.

So many times I have been asked why try to change what I do. So many times I have asked it myself. I think because when I see the market in hindsight, I go for a specific little piece, a 20-50 tick move, and the rest of the chart does not exist sometimes. I see a zone, I go into reversal watch. Period. And I know that if other traders happen to think somehting similiar at that area, there will be the "volatility of question". And that is what I look for. I don't always like that, but it is what I know.

I had a trade last week where I bailed out early on a 6 contract move, only took 60 ticks between the whole 6, horrible trading, and that was at my favorite chart setup period. Today I swam upstream, and challenged the market to go against me. It looks like me and maybe 10 other people in the world were the only buyers of crude today. And I came to the market with balls of steel, where last Friday I wore panties as I traded. WTF is what I think.

Even now, market back "open" though nearly impossible for me to understand, I am looking for "where will it turn?" "Where MIGHT it turn?" Where would it have the greatest momentum in the opposite direction? Or the same direction even, but tiny areas rather than long distances. In, and out.

I chat with Hedvig about a monthly cycle, I scan weekly charts for potential key areas, I labor over charts to define points $5, $10 away...all for the chance to get 10 minutes of chaos and a fifty cent move, then wait for the next one.

Crude broke the prior low with a whisper so far, and the weekly still shows this to be a key area for possible major support. The break might trigger some shorts for the major W5 with a minimum target down into the 77ish area, and that still could be in the future. But I doubt it will really affect me either way. As of today anyway. Maybe tomorrow.

6E finally broke the 786 that held like a brick wall until after the close, then raced back up to it again like it missed being at that number.

The gap up still has me really twisted.

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  #2972 (permalink)
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@Gary

I was one of the other 10 buyers today (although I was buying ES instead). I made the same mistake you did - looking to be a buyer all day. A big part of that was because I wasn't believing what was right in front of my face:

1) VIX drove steadily higher all day - never even challenged the first hour VIX low
2) All the other internals went from crazy strong at the start of the day to weaker and weaker
3) Price rotations steadily confirmed a trend day
4) We broke aggressively out of an Auction out of Range opening swing and never retested.

Several things kept me from seeing reality:

1) Huge over night gap up meant we were well into an uptrend on higher time frame. Hard to believe buyers wouldn't come in at support zones.
2) Very wide initial balance - usually indicative of a normal variation day that balances

I would love to blame my "head" or the "monkey" but truth is I just had a bias that didn't work out for the day. I probably could have quit a bit earlier, but other than that I can't really say I traded badly. Managed risk, took a few losses, and getting my head on straight for tomorrow. My focus tomorrow will be on waiting very patiently for setups (no rushing in to revenge myself) and staying small until I get back in the zone.

Edward

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  #2973 (permalink)
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After that last post, I just received an email from still being on the ATW list, "Sniper Scalping - Everything you need..."

As if I questioned where it all started. Burned into my mind now... lol!

Great guys. I miss that sometimes, Andy's voice, Jerry's morning prep, the trade room "Ca-chings". But after awhile I felt I was never going to grow if I had that crutch forever, checked out and never went back. I tried to introduce a couple friends to ATW, but doubt they made it past the first look with me.


But before that, I dreamed of big swings. Maybe I feel like I never really set myself free from my initial training? Maybe it is a rebellious act, wanting to change what I know?

 
  #2974 (permalink)
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eudamonia View Post

1) Huge over night gap up meant we were well into an uptrend on higher time frame. Hard to believe buyers wouldn't come in at support zones.

That was my main factor. CL actually had some catch up to play, if the move was to be "up".



eudamonia View Post
I would love to blame my "head" or the "monkey" but truth is I just had a bias that didn't work out for the day. I probably could have quit a bit earlier, but other than that I can't really say I traded badly. Managed risk, took a few losses, and getting my head on straight for tomorrow. My focus tomorrow will be on waiting very patiently for setups (no rushing in to revenge myself) and staying small until I get back in the zone.

Edward


You know, my theory on bias is probably not popular, but I believe if you want to trade with one you can. Let's say I only liked to buy. I just have to wait for the trend on the timeframe I use to turn to up, then trade that side. Or, short, does not matter.

On days like today, and one that occured maybe a few months ago, I call it swimming upstream, but that is only really obvious after the fact, assuming I waited for my trend or setup. If I just tired to buy because it was "low", that is not trading. But I think I posted most of my trades today, and they were all with the 6-range above the MAs I prefer, so for that trade, in that timeframe, the "microtrend" was up.

I learned to "snipe", and it was good and bad, but it taught me to change sides quickly. But even though I had so many short opportunities, I did not believe them for some reason, who knows.

Where it can get disasterous is if you get stopped out where you thought it turned, and then you try to prove it wrong.

I missed a swing I was all hyped up about a few weeks ago, got stopped out, and then later that same day it did turn (2nd time, same damn setup, very frustrating), but I would not allow myself to trade it as I was out for the day. Still cringe I intended to go for $2 on a 20 cent stop, the market did not think that was fair that day.

However, I was "out" because I have done it the wrong way too many times to count and learned; if I don't believe it, I don't have to trade it, but I can't try to stop it. Looking back on a day like today you might think, I might think, "what in hell was I thinking?"

I can promise, while a lot of traders were short today, we were not alone.


Last edited by GaryD; June 11th, 2012 at 09:15 PM.
 
  #2975 (permalink)
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Beautiful symmetry to the W2/W4 distance, but not the time. Not that either could change the path from here.


Last edited by GaryD; June 11th, 2012 at 09:34 PM.
 
  #2976 (permalink)
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The 6 range shows a minor 5WM without having to do anything but look at the colors.

 
  #2977 (permalink)
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eudamonia View Post
@Gary

I was one of the other 10 buyers today (although I was buying ES instead). I made the same mistake you did - looking to be a buyer all day. A big part of that was because I wasn't believing what was right in front of my face:

1) VIX drove steadily higher all day - never even challenged the first hour VIX low
2) All the other internals went from crazy strong at the start of the day to weaker and weaker
3) Price rotations steadily confirmed a trend day
4) We broke aggressively out of an Auction out of Range opening swing and never retested.

Several things kept me from seeing reality:

1) Huge over night gap up meant we were well into an uptrend on higher time frame. Hard to believe buyers wouldn't come in at support zones.
2) Very wide initial balance - usually indicative of a normal variation day that balances

I would love to blame my "head" or the "monkey" but truth is I just had a bias that didn't work out for the day. I probably could have quit a bit earlier, but other than that I can't really say I traded badly. Managed risk, took a few losses, and getting my head on straight for tomorrow. My focus tomorrow will be on waiting very patiently for setups (no rushing in to revenge myself) and staying small until I get back in the zone.

Edward



Keep in mind that my wins today were luck. The odds were against me and I did not even seem to know it. Too busy trying to prove something to myself, and getting dangerous in the process.

 
  #2978 (permalink)
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eudamonia View Post
I made the same mistake you did - looking to be a buyer all day. A big part of that was because I wasn't believing what was right in front of my face

Bias has a way of getting you in trouble.

I did the same thing late last night, bailing on my short early because I felt it wasn't getting the traction it should, and that it was too obvious a play. I felt like I was overlooking something, so I exited. And then went to bed as I wasn't feeling great (stomach bug), only to wake up and see a massive sell off.

If I had maintained the short I would have had about 0 MAE and would have hit my 20 point target (I was short from 39).

Oh well. It happens. The trick is to make sure it doesn't happen often, and to learn from it when it does. In this case, I learned that I talked myself out of an awesome trade, because I felt like it was "too obvious" which meant that I had missed something. In fact, what I missed was that it was not too obvious. There were a lot of buyers all day, trying to pick bottoms, and those guys were getting creamed.

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  #2979 (permalink)
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Traders tend to focus on the few broad outcomes that appear most probable and ignore the low-probability scenarios.They tend to view price action they are used to seeing as normal, and price action removed from these levels as aberrant. But, not only do outliers occur, it is in the tails where the real returns are found. And, it is these tail trades that make the real difference in your P&L.

The market trades in a range 86% of the time, so it is this perspective which leads traders to trade counter to an emerging trend on the assumption that prices will eventually return to the mean. This approach also plays into the same powerful human tendencies, which induce traders to get out of a trade early with only a small profit. Psychologically, what seems of paramount importance, is whether the position a trader has right now, is going to work, rather than, the long-run distribution of outcomes that are the result of his methodology.

The market likes to lull you into the false security of high success rate techniques, that work most of the time. Most traders jump at the opportunity to use them because they make them feel comfortable. And, why not, everybody else uses them, so they must be correct. The tendency to do what is comfortable will actually lead most traders to experience even worse than random results in the markets. In effect, most traders don't lose simply because they lack the skill to do better than random, but because natural human traits entice them into behavioral patterns that will actually lead to worse than random results.

Trading is not like riding a bike, in the sense that, once you get over the threshold of learning how to ride, you’re finished. There are various stages of profitability a trader must go through, each one requiring different technical and emotional skills. The trader first has to get to the point in his profitability where he can overcome transaction costs and all the negative emotions that destabilize a novice trader, so that he consistently breaks even. The next level of profitability, is when a trader can actually support himself (and his family), through his trading profits. Accordingly, the bar for his technical and emotional skill-set must be raised, because trading is now his livelihood. Not only are the pressures of trading still there, but the everyday pressures of life are now omnipresent. And last, is the level where you’re trading to make optimal (as much money as you can make, given the amount of capital you are working with) money.

If you really think about it, it all quite logical. The market is just like life; it is never going to make anything worthwhile, easy. There is always going to a price or a premium to pay. If you are going to trade like everyone else, you are going to make what everyone else makes. If you are always looking to reduce your risk, you are going to reduce your profit. Instant gratification comes at a cost, and the price you pay is the lack of a long-term payoff.

So, as various possible outcomes become less and more likely, the market will discount these "new" possibilities somewhat discontinuously. Certain neglected ones of small probability (outliers) will pop into view - a threshold phenomenon. Of course, the inference problem facing catching one of these low-probability moves, is distinguishing the initial parts of such moves from random swings. However, one must take advantage of them to the fullest, in order to get to the highest level of profitability.


Last edited by tigertrader; June 11th, 2012 at 10:01 PM.
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  #2980 (permalink)
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tigertrader View Post
So, as various possible outcomes become less and more likely, the market will discount these "new" possibilities somewhat discontinuously. Certain neglected ones of small probability (outliers) will pop into view - a threshold phenomenon. Of course, the inference problem facing catching one of these low-probability moves, is distinguishing the initial parts of such moves from random swings. However, one must take advantage of them to the fullest, in order to get to the highest level of profitability.



How is a trader to distinguish when to believe in a low probability outcome? Are you simply saying, don't take profit targets, but constanly trail expecting an outlier to occur, let your stop get hit, and if it does not, stay in?

Or are you suggesting that there are times that favor the outliers, and that over time a trader will learn to differentiate? Or at least, should make it a goal to learn?


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