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My journal to trade by understanding market's processes and behaviors
I did my share of holy grail on Friday. It did remember me that focusing on your own method is the way to go and this is what I did after. Worked hard on Saturday and Sunday on the task I did submit in my previous post. The task number 2 (2- Defines set of criterias for regular rotational day when open out of balance (gap)) is the only thing that has not been done. But the criterias around rotational days that did gap is defined within the ''Jim Dalton’s concepts – Markets in Profiles'' section of my trading plan.
Task number 1 (1- Defines set of criterias for regular rotational day with an open in balance) is now the following (also the section ''Day Trading Preparation – Rotational Days'' in my trading plan which has been heavily revised):
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Day Trading Preparation – Rotational Days
Preparation task 1: Choose instruments that has rotational day charateristics – evaluate the 6 following criterias:
1- Shape of the profile, symmetric (mandatory and most important)
2- Overnight Inventory and short term trader's reference levels acting as resistance or stalling prices area
3- One timeframing from the open
4- Open In Balance or Out of Balance
5- Daily volume
6- Watch for mega volume print within the day
Lets take these 6 characteristics one by one with one example on a chart: INTC (a symbol that I watch often) at 12:30 no later than last Wednesday:
1- Daily Profile shape
I got into the market around 12:30 which gave me the chance to evaluate the current day's profile. To be in a rotational day, you need (absolutely mandatory) to have a symmetric profile (not elongated, no multiple distributions and no P or B shape). The profile has to show a regular bell curve (only one) with no mega elongation on both side.
First it is pretty obvious as for the non elongated shape. Second the bell curve is (at this point) made of only one distribution.
2- Overnight Inventory and short term trader's reference levels acting as resistance or stalling prices area
Here is a quick recap of day and short term traders reference levels:
A- Overnight high and low (not the VAL neither the POC of the overnight session)
B- Opening
C- Unchanged
D- Previous day high or low
E- Halfback
F- High volume nodes
G- Current day high or low (this is not specified officially by Dalton but lets study it)
A- Here is the same example with overnight session shown and with reference levels shown:
Does overnight acting as resistance ? Yes, actually both extremity did act as resistance
B- Does the opening seem to limit price action (doted orange line) ? It try to go upper and failed for 3 attempt in the morning so the open is in the limit high zone so, yes on a scale of 10 we can give a 7 at least.
C- Does unchanged seem to limit price action () ? In this case, it is similar as the opening reference level. So yes
D- Does the previous day high or low acting as resistance ? Look at the YHOD line. Price went 3 tick above and that was it. So yes, YHOD acted as resistance
E- Does halfback act as resistance (purple dot on the profile) ? Period 3 and 5 stop at 2 and 1 tick respectively from that level. Lets look more in depth on the 3 minute chart:
First of all, the current HOD and LOD (and by definition halfback as well) were defined within the first 15 minutes of trading and has never been modified since. So halfback is at 33.66 since 9:45. Around 10:15, halfback kind act as a magnet or stalling area. 2 bars either open or closed within 1 or 2 tick of the 33.66 level while one bar actually opens right on it. Around 11:09, 3 bars closes exactly at halfback while 3 others went above and closed lower. Around 12:00, 4 green bar closed at halfback while 4 other crossed the said reference level in either up or down direction. So I gave this a 9 out of 10 if not a 10 on 10 for halfback acting as a reference level.
F- Does the high volume nodes act as resistance and or magnet ?
Ok, here I added a daily volume profile on my 3 minute chart and I added a 30 minute chart with individual volume profile in each bar. The pink section is the daily volume profile POC @ 33.67. It is situated at 1 tick of halfback (33.66) and at 2 tick from the TPO POC (33.64). The answer is yes, the volume POC acted as a magnet on 12:21 on the 11:36 movement down
G- Does the current high or low of day act as resistance ?
Morning low was established early @ 33.56. At 11:30, two 3 minute bar stop at the exact same reference level right on it (33.56). So yes, the current low of day act as resistance
3- Does the chart did one timeframing from the open ?
When looking at the splitted daily profile we see that the three first 30 minute bars were inside bars which is the definition of a short term balance. So, no one timeframing, 10 on 10
4- Did INTC open In Balance or Out of Balance ?
It did open inside the previous day but at the top of it. So it did open in balance but very far in the day range. So I would say a 5 on 10 for this characteristic
5- Daily Volume
Participants in rotational day are the day traders and the short term traders. They have a lot less capital than the intermediate and/or the long term trader. So a small daily volume (less than half of the average volume since we are already a half of the day – assuming the volume is evenly distributed within the AM and the PM) will be the clue as of the long term and the intermediate term are not participating (or at least the did not participate as of 12:30). Lets look at our daily volume at 12:30:
The brown line in the volume section is a 50 SMA of the daily volume. The blue line is the half level of the average volume for that day. As you can see, at 12:30 (near than half of the trading time as been already spent) the daily volume is somewhere around half of where it should be to get an average volume day. This is the kind of daily volume print (25% or less daily volume at half of the trading day) we are looking for to define a rotational day. 10 on 10 for this sample !!
6- Watch for mega volume print within the day
This might need some clarification to begin with. Some times I see mega volume print into the middle of the profile distributed here and there. By mega print I mean 3 minute volume bar that can be like 8 or more time the average volume. And these print, as I mention earlier, are situated within the VA (not at any extremity in particuliar) which tells me that the long term or intermediate term participants are averging into that instrument or stock here and there. So, when I see this kind of volume prints it tells me that they do participate on that specific day and you are most like like into a trend day.
In the current example, there is no mega volume print during the day. The open volume has to be excluded for this volume evaluation
Now we need to speed up the process of stock picking. The daily volume (criteria 5) will be the first speed screening step .On you 24 stock universe, pick only the stocks that are at 25% or less of their volume SMA 50 at 12:30. From there, evaluate the shape of the profile (criteria 1), the day and short-term trader reference levels (criteria 2) and the onetimeframing action (criteria 3). Lets assume that this second screening activity did screen the list of 12 symbol to 6 symbols. As for the third screen step, evaluate the other criterias which are: Open in or out of balance (criteria 4) and the mega volume print (criteria 6). This process will be defined with a checklist sheet called Rotational Day Check. Pick your 4 top rotational day instruments.
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The charts images are missing, I have to figure out why the Insert Image button does not allow me to choose a local file (only URL) but I did attached my completed trading plan (most recent version in PDF for nice and detailed images of my Preparation and screening process. OK I did find how, refer to the wiki section of futures.io (formerly BMT) for the article: ''How-to Capture and Upload a Screenshot'', BigMike did a very nice and detailed video on this topic.
I feel I need to add the gap up feature which usually gives us late afternoon run according to Dalton (good for me since I trade in PM only), ok I will work on this I think ... Because if I do not define it properly and I know it has good potential it will haunt me each time I see that kind of situation ...
Also I did attached my most recent Checklist, the Rotational Day Check worksheet has been totally redone. I will chage the order later, I did practice it a little bit and I feel that evaluating the Daily Volume, the Profile Shape and the OneTimeframing action from the open are 3 criterias that goes well together as a first screening pass.
But enough for today, I have to do some task here like going to the gym, drop the skates for blade repairs, do the grocery for the week and the weekly budget as well ...
I did practice my stock screening process for past days. I did choose 5 Fridays of January and February 2015 and it went like this:
The screening process did take me around 25 minutes for each day (I am pleased with that, I start at 12:30 so around 13:00 I should be watching my 4 top pick stock) and I had always 3 to 4 stock that were meeting the rotational day criterias properly. So this objective was reach, with a basket of 24 stocks I did end up with the target amount of filtered stock which was 4.
Of course, I did evaluate the results of these chosen stocks for the rest of each trading period. I did replay the market at fast forward for each stock for each day and I ended up with the next result:
January 16 with 4 stocks (AIV, STLD, TEX and X): Only one opportunity and it would either be a looser or a neutral trade
January 23 with 3 stocks(MGM, CMCS and AKAM): Zero opportunity
January 30 with3 stocks( AKAM,GM and GT): Only one opportunity and it would either be a looser or a neutral trade
February 6 with 3 stocks (GNW,STLD and INTC) Zero opportunity
Feruary 13 with 4 stocks (INTC, GT, CBG, TEX) : Only one opportunity and it would have been a winner
The result were not what I was expecting.
This was very negative and my ego was touched !! But at least, I did tested it and it saved me a lot of time to discover this situation ...
So the screening process is ok I think, it is my execution rules that keep me out and even when it gets me in I ended up with a win/loss ratio of 1 winner for 2 looser, not the best situation. The biggest issue for me is not having enough trading opportunity.
While being depressed at seeing my result I did a bit of research on bid/ask difference volume bar and went back to tick chart (number of trade bars) and added volume profile on each bar ... I think I discovered something that I did not quite understand but was part of my trading plan which is ''high volume nodes'' as being a short term reference level according to Dalton. Here is my interpretation of that reference level:
I did added the following day and that same level continues to act as resistance:
This is a 40 trades per bar which gives an average of 3 to 4 minutes on both day for each bar.
Does the comments on my chart make senses ?
I would like to get a better knowledge around ask and bid volume to get a better execution plan. This might help me getting more trading opportunities. I will do some research on that topic on nexusfi.com (formerly BMT).
Also I did notice a push down of the low of day on that same day for the same symbol (CBG):
I know that to break it usually has to attract new participants (higher volume) and tempo will accelerates (both according to James Dalton). Looking at BarTime and Volume on the CBG3 chart (being a trade based chart) not moving at all when the LOD was pushed around 13:33, can we get long there pretty safely ? I would think so, what do you guys think ? I might try to orientate my executions around these kind of behavior/pattern that touches certain reference levels without activity increasing ...
I did review my results for a second time. I did find out that I do screen stock based on daily volume comparison at 12:30 with the volume SMA 50. My plan was to make sure that I was in a low volume day and for that I was looking to be no more than 25% of the SMA50. I did find out that I should compare my current volume with recent rotational days to get a better perspective instead of comparing it the SMA50. This will be my change number 1.
I did notice also that having the open near the center of the previous day's range was neglected in my first practice. I will add some emphasis on the important element for screening for rotational day.
I will perform another practice based on this modification and will keep you updated.
I did looked at some webinars on futures.io (formerly BMT), did watch Damon Palvatos most recent and Linda Bradford Raschke webinar 1 and 2. I did change my stock screening volume criteria for the 1st 30 minute of trading of the day, this is what Linda does to evaluate if she is in presence of trading range day or a trend day, I do compare the 9:30 to 10:00 est trading volume with an SMA 10 to get a score based on a scale of 5. I do set my session time to 9:30 to 9:59:59 in order to see only the first 30 minute of each day so it is easy to compare with previous day volume.
I did find out that all of my stock that I did screen gave me significant move in the PM but not necessarily rotational or range move. Some were breakout while other were return to VA but all gave significant moves which was an unexpected but interesting result since I do trade in the PM only. I did test 5 days, my day number 1 is attached with this post including my screening process and the actual charts (one screen capture @12:45 and one screen capture at the close) of the selected stocks.
I did review my results and when I do look at my charts I still feel that I am clueless. It makes me anxious (I am not sure if it is fear of trading, lack of confidence in my execution plan, lack of knowledge or maybe a little bit of everything) but I decided to listen to that anxiety. Hopefully it is not playing the holy grail game again. I know that I did engage myself at the beginning of my futures.io (formerly BMT) journey to get the context with Dalton (which I feel I did a good job as of now) and get the execution from the book The Logical Trader (which I did not did at all) and I think this is the part that I have pushed that is missing to me right now. With the help of Damon's and Linda's webinars I will to redo my execution plan and perform some testing on the stock I did screen to see how it goes. I am kind of replacing the Logical Trader here with Damon and Linda's work for now.
I am already reviewing Damon's webinar for the 3rd time today, this webinar is full of content and it will be the core of my new execution plan.
Alright, it took me some courage to right this, I feel I have change methodology so many time in the past, now it is not really a change I believe, it is more a completion of a formal execution plan but I still feel strange and guilty about it but lets see how it goes with some veteran skills into my trading plan ...
Saturday morning here and it is still -20 degree Celsius ... But it is good for my trading, the office is very quiet which allow me to spend more time on my trading !
Multiple things I want to address and share :
1- I need to trade more and stop waiting for the perfect trading plan.
2- I need to accept that I will have loosers (and learn to digest loosers)
3- I want to share with you my new execution plan (heavily influenced by Damon Pavlatos)
4- I did review the results of my most recent stock picking process and on each stock that I did choose it ended up having an end of day move (not bad for a PM trader !)
5- I have a shorter trading plan (I got rid of some stuff and created different documents for knowledge base and studies) which contains 14 pages instead of 21
6- I have a much simplified trading rules checklist with a visual reference example on it.
So like my wife has been told around perfection at her last day job, if you are ready @ 70% that is ok, we will wing it like this !! Knowing that a perfect trading plan/strategy do not exist, it could end up that my perception of 70% might be in fact even higher ... We will see.
I will monitor rules and winners and loosers and money as well. But I have ZERO win/loss minimal ratio and ZERO minimal money to make. My plan is to take 10 live (or replay) trades to learn to digest my loosers.
Ok, enough now lets start with a first trading session with my new execution plan ...
Did play the market with AKAM and CBG from 12:45 to 13:30 for November 7th 2014. It was a winner and a super entry. Just before getting long I did cancel 2 short entry orders that I notice before being executed that rules were not respected. And the the long side came in about 25 minute later ... Check this out :
My rule is to get out at most recent pivot which I did, 0.02 lower than high of day. I did work hard for the last days and it paid off ...
No trade for me today. I had only one opportunity on a pick that I put in third place while it should have been my top one stock to watch. Anyways, did learn to listen to my system, and being calm.
What really happens is that I ended up with a top 3 stock to watch. I do not want to follow more than 2 so I pick 2 of my 3 top pick. The one that I put aside (I did find that after the trading session) was actually the one that did have the best score on my pre-screening sheet ... And of course, it was the one that would have gave me one opportunity.
But I am ok, I have to learn to live with zero trading day as well, but looking at the score of your system is something to not neglect ...
I am very glad of my afternoon. I finally pressed the button many times !!
Trade 1 was a small loosing trade (stopped out) and I should have re-entered 2 or 3 bars later which I did not ... Afraid ... (GM)
Trade 2 went well and executed perfectly (GNW)
Trade 3 (GM again) did triggered when I was long in GNW. Did set a Range order on GNW and everything was find. Got long in GM (200) and this went ok. Did set my Range order for GM and once I press the sell button I ended up being short 200 on GM !! So I bought 200 @ mkt to get out of the wrong side. Went back in long 200 again. I assume I did an error in my first range order so I did make sure this time my range order was properly setup. Hit the sell button again, same behavior, I do end up being short 200 again !!. Bought 200 @ mkt again to get out of the wrong side ... again. This was enough, I was already long GNW so I abandon GM on the long side. Of course you know how these kind of situations usually end up ... Yes, GM trade 2 would have been an excellent trade if I would have got in a 3rd time by managing my trade not using the Range Order ... I think there is an issue when I am long 2 stocks when I try to set a second range order on my execution platform ...
Charts are in the spreadsheet attached (including GM trade 2). I added a SMA10 close as rule (SMA10 has to point into trading direction), Pavlatos talk about that in his webinar on futures.io (formerly BMT) but I did watch another webinar on his web site (34 years of dos and don't) and he definitely uses that moving average as a criteria. Very good webinar, many thanks Damon.
I think I feel I am in a kind of zone here, I really like my most recent execution plan, I am not anxious and it brings me confidence. Today, on both of my picks, I had afternoon movement which is great. This is due to my stock screening process which still works and deliver PM movements.
That is it for now, next trading session will be Friday.
2 loosers for me this PM. Both with MBT. Charts are attached. I feel ok, I did pull the trigger twice and within my daily loss rule. Also, all of my rules were respected. The stock was flat for hours and then it gives a bump up, then down then went back up into the initial zone, I tought they were collecting stops on both sides and my rules were all aligning for the long side so I jumped in but it was late in the afternoon like 3:15 ... Stopped out. Another opportunity came around 3:40 ... Had to get out at close, it did not went anywhere ...
And of course, it was the one that would have gave me one opportunity.