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Back from a very welcome vacation! I've got a great sunburn on my back that is currently keeping Aloe companies in business and a calm and clear mind for this week's trade.
In my opinion, there was one important thing that happened this week. We never traded below the lows put in from the Turkish coup. Sure, there were a couple of days that paid shorts, but the overall trade looks like it was back and fill near all time highs. The measured move from the Brexit lows to the consolidation period a couple of weeks ago has a target in the high 2188 price range (ETH meas. move). That's my target for this week. I figure that 2190 gives a solid 20-25 handles of trade, especially if we have a day or two of countertrend motion (I'd love to buy a revisit to this week's ETH vwap at 2161
I mention the resilience of the market because of one of my expectations from two weeks ago leading into this past week. Markets that do not like new lows or new highs see quick rejection of the prices. The ES has done the exact opposite of that for the past month. Trade has been slow, grinding, and the market has auctioned the 2150-2170 range continually without a precipitous drop. In fact, the exact opposite happened; the Turkish coup brought sellers on Friday afternoon, and Sunday gapped open.
If we hit the 14 day ADR (which I think is still skewed from Brexit volatility) then price will be somewhere in the 2180 zone. A strong ON push could easily bring us to mid 2170s, and RTH action would likely fill in the rest.
On the other hand, if price opens within Friday's range I will be looking to buy breaks. The POC of recent trade is 2160.25. I would love to buy a discount with the expectation of seeing 2200 sometime this year. If sellers start showing their hand, I will expect 2156.50 (last week -1SD ETH vwap) to see a bounce.
My overall expectation for Monday is more slow trade with a bullish bias. I have been away from the market for quite a while so I probably am not going to be perfectly in tune with price action tomorrow. I will try to keep my trading to a minimum as a result to avoid going all in at a foolish price point.
"Write down every emotion that went through your head while its fresh ( even better would be to post them for everyone's benefit but I get that humility could come into play when being incredibly honest). Also write down what you failed to recognize while you were in that "state of mind". Next time you see the same potential setup- take the 2 min to go read what you wrote down. That's how I developed the retail bus setup. The time it takes you to read it will likely negate the "call for action" and the past reference will give you a clear head. FWIW- Y_Low was just below for support. "
This afternoon I found myself riding the retail bus. I had a good average on my long, I saw 3 points of MFE, and then the trade came back to me as a scratch. In retrospect, I should have taken the opportunity to double the size of my position and scale the scale out much higher.
In the moment I was nervous. I was nervous that the trade would come back to my original basis and that I would stop out. My stop out wouldn't have been for a loss; it was at breakeven and I would simply have been flat on the day. I think that I was most worried about not making money instead of worrying about maximizing my profit potential.
I was anxious that I wouldn't make anything from the trade. I actually moved my stop to a tick in front of my exit point. On the first swing down I avoided exiting. I scaled one contract for 1 point, and then boarded the bus and fear-exited my second contract on the second swing down. I made 1.25 points on this first trade.
I failed to recognize that my thesis was not invalid. I didn't see that the return to my entry hadn't even touched -1SD or Y-Low. I took the increasingly negative TICK as a sign that the market was about to roll over, instead of as a confirmation that the market was holding up even in the face of selling pressure. I forgot that I was targeting 60 and above in the moment; I started rejoicing at +1.25 and grimacing at +0.75. I didn't understand that price was refusing to trade back down. All I saw was a few ticks come off and all I could think was that I needed to exit my long immediately.
Not even five minutes later, I reentered on the same thesis during the sameprice action after realizing that I exited poorly. This was a nice trade but it wasn't as leveraged as I would have liked. I didn't reenter with the same size because I wanted to avoid the inevitable FOMO risk that I incur as I jump in and out of positions. I've found that, over time, my willingness to jump in and out with a full sized position has cost me countless points. It was best that I traded small.
Things I need to realize:
1) Especially during trade that sees five point swings at most, retail bus trades are very likely. There are thousands of guys like me who either move a hard stop to breakeven or flee at the first sign of trouble.
2) If the initial idea was right, there will be opportunities to increase size. I need to take advantage of these (as long as I'm not foolishly adding ten contracts after the trade moves a couple of ticks in my favor).
3) When I start to jump on the retail bus I'm acting like a novice trader. Do I want to be a novice trader and run for the hills, or do I want to behave like a professional and line my pockets with their dollars?
I traded well to day but I ended up losing money. I suppose that happens sometimes in this business. I'm not disappointed in my execution, but moreso my refusal to step away when I realized that I wasn't in tune with the day's action.
Trade 2: Long again (thinking we had just seen a retail bus and that I'd been on it), exited for -1.50 after seeing quick and fast selloff.
Trade 3: Short 58.50, 57.50, and 60.25, stopped at 62.75. This was the execution of my thesis that we'd go on a downside stop run. In hindsight, I should have sold the midday return to VWAP and taken my money and run. I also should have hypothesized that we'd see range based trade before the FOMC.
I'm at -8.50 points for the week so far which is an unfortunate start, but I'm sure that I can trade my way back by the end of the week. Honestly, all I need is a few points on a few contracts which is certainly achievable in the face of FOMC volatility.
I think the significant issue I was dealing with throughout today's trade was that I didn't believe in the trades I was putting on. They were all stabs in the dark. I was unprepared for the eventuality of choppy trade with wide swings and it shows in my P&L.
Today's action was glorified chop with volume that dwindled as the day went on. At the same time though, today's volume was slightly greater than that of a 14 day average volume study. I think a few people got flushed today as we traded past yesterday's low. I wasn't one of them (though I had a losing day) but I sure as hell felt out of touch with today's trade. In retrospect, today would have been an excellent "Fade the Deviations" trade but I was not looking for that type of trade.
I just boosted the line thickness of my VWAP and SD bands to force myself to recognize price in relation to deviations in the future. Perhaps it won't fix a thing, but it makes me feel better right now!
I think that Yellen is going to say the market looks great but they're not going to raise rates. I think that western central bankers are going to be scared by the British stimulus recently implemented to cheer up the UK economy after Brexit--so scared, in fact, that they'll use the typical generic rhetoric ("We some factors, we dislike others, we continue to monitor things, 'till next time") to give the US markets a slight boost to new ATH's which will complete the measured move that everyone and their brother have been talking about.
--We typically see some sort of shock at 2:00 PM Eastern. Depending on how many get shocked out of the market, I anticipate trade down to 2154.50 (-2SD weekly RTH) and possibly 2151.50 (-3SD). Not only is this a large deviation move, but the volume profile has seen very little trade take place in the 2150s. I believe that roaring bulls will snap up lower prices--if the market is good--and continue buying into 2170.
--The 2150-2170 range gives a healthy 20 points of volatility. The 14 day ADR is 14 points; I expect FOMC to add another six points to that.
2) The market sells off from FOMC.
--Again, a bit of volatility is to be expected. In this case, I expect the market to be trading in value come announcement time (HVN 2159) and to see an anemic three to four point rally into the 2164 LVN before rolling over heavily.
--Retail longs will be nervous to lose the successive lows 2154->2152->2149. Novice folks will almost certainly sell with too much size; I'd look for a late day five handle squeeze off of lows designed to shake out shorts around 3:45 PM Eastern.
3) Nothing to see here; market stays within today's range.
--This is the least likely case in my opinion. With the large FOMC catalyst in play, our tight range since 7/14 has got to give one way or another. If volume dries up after the announcement, I'll stay flat for the rest of the day and come back on Thursday morning with guns loaded and ready to play.
I stayed away from the morning trade to avoid getting myself into a long too soon. My bullish bias would likely have seen me build a long as a fade trade around 2161, only to get stopped out around 57 or 58.
Even so, I managed to stop myself out twice before hitting the big winning trade today.
Trade 1: Long 2159, stopped 2157.
- I took this trade looking for an acceleration back to VWAP, thinking that we'd have a mirror of yesterday's trade possibly.
- My execution was not great. This was a stab in the dark trade (these almost always end up costing me money) which was not at all aligned with my overnight analysis.
Trade 2: Long 2158, stopped 2153.
- I cannot believe how foolish I was here! I knew that retail folks would get stopped out on some sort of FOMC volatility.
- My execution was terrible. In hindsight I should have set a ten handle stop and walked away for FOMC. Better yet, I should have been aware that I might stop myself out on negative price action and I should not have had a position during the announcement.
Trade 3: Long 2159.75, 2158.50, 2157. Exit 2160.50, 2164.25, running last contract.
- This was my great trade of the day. As soon as I got stopped out I felt like a fool. When the market recovered its pre-FOMC price levels I reestablished a long.
- In hindsight I should have executed right at -1SD vwap. A perfect execution in this case could have earned me another point or two.
- I could have rinse-repeated off of VWAP after getting my second scale out. A VWAP to +1SD scalp would have been another great way to improve my theoretical average on my runner.
As I read back through my journal I'm noticing that my execution is pretty much dogshit. My trade ideas are solid and sometimes even right on the money, but my poor performance otherwise is inexcusable. There's one thing that I can control throughout the day and that's how well I execute my plan.
From now on, I will make a conscious effort to execute my plan according to the zones that I deem important. I'll keep a notebook in front of me too so that I have a tactile reminder to execute precisely.
For all of those who read my journal--As you made the turn to consistency/profitability, did any of you struggle with imperfect execution? If so, how did you eventually overcome it? If not, what was one of your novice practices that you had to actively work to overcome?
My afternoon trade was performed well. My first scale out touched VWAP to the tick and came right back to my average (I should have added the contract back on in retrospect), and my second scale out was placed right at +1SD which was well executed.
My overnight management will be essentially nonexistent; I've got a moon-shot scale out twenty handles above my entry price and a breakeven stop. As far as I'm concerned, the trade is free and I should be concerned with hitting the MFE as well as I can.
Today's POC is 2161 which is pretty much right in the thick of all the volume that's traded since 7/14.
For tomorrow:
I'm expecting some sort of acceleration. We have been in balance for quite a while. Price has been rejected at the highs and lows and now the Fed says that rates aren't changing. That sure sounds like fuel for another push higher to me...
1) Acceleration higher.
- An opening around 2164.25 (LVN) is met with a quick pop up to 2169, at which point sellers push the market back to the 2161 POC.
- The LVN is now support; buyers fill their pockets with the dip, and the ES retests the failed 72.25 high.
2) More damn auctioning.
- An overnight attempt at 2167 fails, the market rolls over to the 2161 POC, and bounces around HVN/LVN zones for the rest of the day
- The ES loses 2161 overnight and opens around 2156 (cluster of recent swing lows). We revisit 2161 to lure in longs, then quickly lose ten handles down to 2152 (today's low). The market bounces to the open before turning lower and testing 2147 (weekly VWAP from a couple weeks ago, -3SD weekly VWAP from last week).
Still do all the time and it seems when it happens it sticks around for a few days then just snaps back to good. We all do this as far as I know. I can remember Big Mike was struggling with execution for a couple of weeks at one point and was pissed about it- my past couple of days have been poor execution as documented in the threads I post in. For me, I know it is a function of the choppy markets and the way I trade since I need them to really move to get traction from fading and scaling. I've noticed my "scalper friends" are doing really well in this environment- kind of similar to when we were having consistent intraday swings of 10-20 pts earlier this year for me (I literally made a years income in a few weeks during that volatile time). I think its important to assess who is running the show and adapt- unfortunately, sometimes by the time we adapt the ball gets passed and we must change again. I think you trade similar to me (scale and fade levels- yours from your analysis and mine from mine) so you may just be in a poor environment for our approach. Just think how crappy it would be to only have one shot(one lot)....
My overnight long got stopped out at breakeven which is unfortunate because I hit about ten handles of MFE before giving it all up. Next time I should establish attainable targets for my runners instead of just shooting for the moon.
Trade 1: Long 2155, Exit 2160
- This was the cleanest execution I've had all week. The market came back from a VWAP pop to retest -1SD, I bought it, and the sonuvabitch went bid hard.
- Believing in my thesis was important, but I should have really believed in it and scaled in to a sizeable position.
- I could have bought VWAP all day long after the initial long and been fat and happy by the close
So what did I do right today versus yesterday?
I believed in my thesis. Note that None of my theses were correct. If you had paid me to tell you what the market was going to do, I would have been dead wrong. However, I started the day thinking that my analyses must be correct. As soon as none of them played out, I realized that I had to adjust my beliefs and trade what the market was giving me. I was considering getting short but decided against it after we tested IB Low and saw a strong bounce. I entered my long order when the market saw a quick VWAP bounce; I was filled and hardly saw a tick or two of red before the trade was multiple points in my favor.
The trade just felt good. I actually had the order fill as I was in the bathroom, and instead of feeling that I had to check the screen to see what my position was doing, I felt that I was correct and that the market would continue its push upwards.
