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Oil continues to sell off and we are in a similar situation to yesterday. We currently sit on or near a high volume node on a one year extended TPO. We have also taken back most of the leg of an up trend that started in April, so a longer term bounce soon would not be unexpected.
However, there is a lot of liquidity on the bid. Yesterday we saw orders in the 400-500 sitting on some prices. This means the higher time frame players are probably loading up. I'll want to see these orders dry up before expecting too much to the upside. This does not mean I will not take a long if I see the potential for a 10-30 tick move though.
For now, the hypos are similar to yesterday. Both are variations on an expected continued down move.
Update: the situation has changed dramatically in this first hour. I now need to be ready for anything. I have taken three trades, all moved against me but managed to lose on only one of them. -9t so far.
Update, end of day: both hypos were blown out early. However, as mentioned in the blueprint, the bounce was not unexpected. I took a couple of unsuccessful short trades before adjusted to longs. 5 trades, +17t.
Price sits within a 50 to 80 tick range or wedge depending on how one interprets the edges of support and resistance. There are many possibilities today. Fading the edges will be difficult because the edges are not well defined. Oil inventory should shake things up and provide some answers. Unless a strong move develops before the report I can see doing nothing until CL shows its hand a little more clearly.
As happens often, oil is found hovering around a key area, in this case yesterday's POC. This means of course that price could go either way from here. Therefore, I will be looking for signs as drawn and taking pull backs to previous minor S/R.
Update: end of day. Price ended up breaking to the downside. Took 4 trades, 3 shorts. Two losses, one win, one BE. 0t on the day minus comm.
On the really big picture on the daily chart, we have hit a swing from 4/18
It has made an impulse move to yesterday's POC at the open. In the short term I will look for a retrace area to look for a long. If price breaks down off the POC I will switch to looking short.
The market is in a big down trend from overnight. We have seen one long leg, a 45 tick retracement led and now a resumption. My bias is down as long as price stays below the 41.20 area. Friday's RTH POC is at 41.13, while the overnight POC is at 41.20. Either of these could be considered resistance areas to look for shorts.
CD is working its way back to the overnight high. Ideally I would like to see it hit the overnight high while price simultaneously hit Friday's POC. This would be a good area to take a short.
Price sits at the top of an overnight swing high created by Friday's low. This swing high has been tested once, with a retrace of 30 ticks.
To the upside I am looking at two scenarios. One is a breakout and small retrace. The other is a test lower then continued up move.
To the downside, this swing high would hold and test areas lower.
Update: mid day. Price chose the second route to the long side, retracing to 40.31 before nailing the pre-drawn level at around 41.90. It has filled the RTH gap from yesterday so there may be a bounce. However, there are large bids below that I anticipate the market will go after. I will be looking for an area to short as I expect more down movement, perhaps around the OR low and a coinciding LVN.
Monthly Recap July 2016
Live Trades: 0, live account still at $2840.17
Still plugging along in the combine at 68 trading days and $41 under water. It feels like I made the right choice to revamp my entry tactics but the P/L isn’t showing it yet, with only a $185 gain for the month in 63 trades. The percentage of successful trades is up slightly to 57%. More importantly, the number of trades reaching 2R is up quite a bit from the days of waiting for confirmation, to 35%.
Stats for the month:
Trades: 63
Net gain: $185
Price reached 1R: 36 (57%, compared to 52% in June)
Price reached 2R: 22 (35%, compared to 32% in June)
Price reached 2R while moving stop to BE after 1R: 16 (25%)
Price reached 2R while leaving stop alone: 6 (9.5%)
Unsuccessful trades that were exited at or near BE: 13
Successful trades that were exited with almost no profit: 15
Ticks lost by tightening stop before price hit either 1R or -1R: 229
Ticks saved by tightening stop before price hit 1R or -1R: 156
Net ticks lost/saved by tightening stop too early: 73
From these stats it appears that I am losing profits by managing trades too tightly. This would be the expected result as the percentage of successful trades goes up. When a trader is mostly taking losing trades, managing tightly tends to save money.
As documented, the biggest change I made was in regards to my entry tactics, entering at levels rather than waiting for confirmation. Trading levels requires a certain amount of skill and confidence in picking good levels. Otherwise, the trader will just get run over time and again and will be in no better a place than before. For the longest time, I did not possess these skills nor did I have the tools required to find higher probability turning points. Had I tried this a couple years ago I probably would have burned through many more combines. This is not to say I have figured it out, not by a long shot, just that I have found some techniques that at least give me a fighting chance.
Trading this way requires a different mindset as well, with some amount of courage and faith that the levels chosen will hold enough times to be profitable. At first it is quite disconcerting to place a limit order in the market and watch price charge toward it, not knowing if or when it will stop. This is where some philosophical thinking can help. For example, the thought process goes something like this: I took plenty of losses waiting for confirmation. Just because it was more comfortable to wait for confirmation did not make it more reliable. I will take plenty of losses trading levels. However, if I my success rate is the same as it was waiting for confirmation I will be ahead of the game because the trades will have more potential.
Of course, there have been plenty of instances of getting run over by the freight train. These are not enjoyable moments and can have lasting impacts on the confidence. It is in these moments where the philosophy described above comes into play. Even though the trade was a total failure, had no chance, and ended swiftly, it was just one loss among many. Whether it hit my stop in 7 seconds or 7 minutes makes no difference. Regroup, look for the next trade, perhaps in the opposite direction to take advantage of this newly developed momentum.
I have been working on ways to mitigate against getting run over. One way is to wait just a few seconds to see how price reacts at the level. There is a certain look to the market when a level has the potential to fail. These few seconds can help identify these moments. However, with an average stop of 10 ticks, one can’t wait too long or they risk falling back into the confirmation risk thing. I will usually use this technique at longer term levels where the trade is against the mid or long term trend. Trend changes don't happen immediately and often provide a couple of opportunities to get in early.
Through this process I have come up with several types of trades:
One is the Impulse-Retrace trade. The market makes a clearly impulsive move with more potential, then retraces anywhere from 10-30 ticks before resuming. If it is a strong impulse I’ll enter blindly at 10-13 ticks of retrace. CL will often turn and run another 20 ticks or more from here. If I can get my stop behind a high volume area from where the market just came, all the better. Otherwise, I will enter at a POC, VWAP or other area identified on smaller charts where price should not go beyond if the original move is real. If price retraces much more than 30 to 35 ticks it probably means the move is over and I need to start considering other options.
Another trade is where in a strong trend the market will pause and trade heavily at a certain price. This can be easily identified on footprint. The market will then try to break out of this high volume area against the direction of the impulse, maybe 1-6 ticks, and then fail. This is where the retail trader is trying to catch a top or bottom. I will place an order on the opposite side of the high volume area in anticipation of the failure. I call this a High Volume Node Break Out Failure.
Another type of trade is the fade of a key area of S/R identified on footprint or volume profile in advance. These are the trades where I will wait a few seconds for clues as to the strength of the level. If the level is strong these are the highest potential trades as they are often areas of trend change.
Lastly is the fade of a range. Fading ranges still gives me the heebie-jeebies so I don't do it often. However, when viewed in hindsight they can represent a virtual ATM machine. Again, a little philosophy helps: A range break out will only succeed once, whereas there might be 3 to 4 failures to pad the account in the meantime.
One advantage of trading levels is that I can often recognize when a trade is in trouble and exit early before taking a full stop out. However, as I examine the stats it appears I was a bit too skittish with my management in July.
I have attached the spreadsheet I’ve been using for the past year to track my trading stats
The market has retraced about 40% of yesterday's sell off and sits in the area of a swing low from yesterday's overnight and Friday's low. From here it could go either way so I will be waiting for some directional guidance at the open. I expected more down side movement eventually, but am not biased that way yet. We could very well take back a bit more from yesterday's down move before doing so. There are several areas of resistance above that could be tradable.
The market filled the gap in the overnight from Friday and took back most of Monday's down move. Price currently sits under yesterday's POC. As long as it does so I will be looking to the short side on pull backs. If it holds above the POC on an impulse I will switch to longs.
Price sits on yesterday's high. Either it pushes through where I will look for a pull back long or it bounces off the high where I will look for a pull back short. I got run over three straight times yesterday so I'll need to exercise some will power to take trades today.
