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shodson's Trading Journal
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shodson's Trading Journal

  #221 (permalink)
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Hi Scott,

So if the gap guides were showing weak gap fill rates today, then I'm wondering why did they not recommend trading in the direction of the gap?

Thanks for the question.

Their system is entirely based on gap fill. 70% of the time the gap does fill, if you use no stops, so you want to take only the gap trades that have the highest percentage of filling that still allows you to use a decent sized stop without incurring catastrophic losses. Sometimes they take a day trade to go with the gap when the odds are very low, and if other factors are in play. Take today for example:
  1. The overall market trend has been bullish
  2. It's a Monday (usually bullish)
  3. The 1st, 5th, and 16th of the month are also usually more risky for fading up-gaps because of their tendency to be bullish. The 1st and 16th are bullish because of mutual fund inflows. We don't know why the 5th is usually bullish but it is.
However, the day trades they sometimes take are not what they have back tested and they don't encourage people to follow them, but it's educational to watch them take certain day trades and hear their rationale for taking them. With that said, their discretionary day trades use much smaller position sizes (10% or less) than the position sizes they use for their gap trading because they don't have the same statistical edge that they feel they have with fading the gap.

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  #222 (permalink)
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Tuesday 4/6 - Good gap guide probabilities today with the ES opening in the U-CO zone. NQ and TF were lined up similarly, providing further confirmation of a good setup. The YM was the only one that opened in a different zone (U-OL) but 3 of 4 was good enough for me. The fact that the target was at it's 52-week high was also concerning for me, but the trend is currently up so I received some comfort knowing I was going with the trend.

The gap filled almost 2 hours into the day but never took much heat as this bullish market melt-up continues.

Watched CL as well while waiting for the gap to fill. I didn't see any clear winning entries that I wanted to take.

ES: 1 winner: +16 ticks

Attached Thumbnails
shodson's Trading Journal-20100406-gap-guide.png   shodson's Trading Journal-20100406-gap-play.png   shodson's Trading Journal-20100406-es-original-targets.png   shodson's Trading Journal-20100406-es-moved-stop-break-even.png   shodson's Trading Journal-20100406-es-filled.png  
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  #223 (permalink)
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Wednesday, 4/7 - Decent-ish gap guides today, enough to fade the gap. Got within 3 ticks of my target so I tightened my stop just below the Globex low. Market turned around and stopped me out for a loss, then turned back up without hitting my original target so moving my target may have been a bad decision. Tightening my stop decreases my win rate and changes the parameters of the original setup. Whatever happens here the rest of the day I think I just need to stick with my original stops and live with a full loss because it interferes with the statistical probabilities that got me into the trade in the first place.

At 7:30 we got the EIA petroleum status report, my favorite news event of the week, and I went short on the post-news breakdown.

Overall, I made enough to pay my commissions today with some lunch money leftover.

ES: 1 loser: -15 ticks
CL: 1 winner: +20 ticks

later...

Yep, the gap did eventually fill a few hours later without visiting my original stop. Mechanically following the gap guides would have given me a winner instead of a loser. The "1pt" rule (move your stop if you get within 1pt of gap fill) is something the MTG moderator does as a discretionary move for his own psychology but it throws off the probabilities and I think I'm better off just following the gap guides mechanically and he doesn't advise people do it. I need to decide if I want to use this rule or not, incorporate it into my plan and stick with it. So far the last few times he's done it it has cost him money but I've seen other months where it saves him too so I just need to decide what I want to do ahead of time and commit to it.

Attached Thumbnails
shodson's Trading Journal-20100407-gap-guide.png   shodson's Trading Journal-20100407-gap-play.png   shodson's Trading Journal-20100407-es-original-targets.png   shodson's Trading Journal-20100407-es-tightened-stop-1pt-rule.png   shodson's Trading Journal-20100407-es-stopped-out-then-turned-around.png   shodson's Trading Journal-20100407-cl-post-news-breakdown.png  

Last edited by shodson; April 7th, 2010 at 02:41 PM.
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  #224 (permalink)
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Thursday, April 8th - The gap guide setups weren't that compelling today, but we gapped down and the market has been so bullish I was anxious to pull the trigger. Then in the MTG chat room it was mentioned that the profit factors for going for the extended target were interesting so I took a look. While not astoundingly good, I thought I'd go for it if I could get in with a 2+pt retracement in the first few minutes, which I did. I took just a little heat, chopped around most of the morning then the market busted a move to the upside hitting my target for an 8pt win. This is the largest target I've ever hit in the ES.

Was watching CL but wasn't around to catch the high-volume swing high/low breakouts that were good for 20+ ticks each.

Watched price action for NG's inventory report, that thing went bonkers! Would like to study this market a little more.

ES: 1 winner: +32 ticks

Attached Thumbnails
shodson's Trading Journal-20100408-gap-guides.png   shodson's Trading Journal-20100408-gap-play.png   shodson's Trading Journal-20100408-es-extended-target-hit.png   shodson's Trading Journal-20100408-cl-nice-breakouts.png   shodson's Trading Journal-20100408-ng-inventory-report-madness.png  

Last edited by shodson; April 8th, 2010 at 06:21 PM. Reason: typo
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  #225 (permalink)
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Friday, April 9 – Good gap guide data made me go in at the open, though I wasn’t excited about shorting this bull market. The gap was small so I went for the extended target which in and of itself had a decent setup. The gap did fill but then turned around and chopped around the rest of the day, until it went higher into the close.

On the 6E I saw an entry based on volume patterns so I went long, but after looking at the price action I realized that last near volume spike was following a long up trend and that there probably wouldn’t be much continuation and that it was probably an exhaustion move, so I quickly got out for a small loss. As you can see on the chart I was right to get out when I did as the market shot hard to the downside through what would have been a full losing position. I guess I could have reversed but I wasn’t convinced it would reverse, just that the odds of continuation were not what I thought.

I took a volume pattern signal for a short on CL as well, though I should have waited for more volume but I guess I was trigger happy. Turns out it was a winner. Luckily it worked out for a nice 20tick scalp but it ran lower for another 80+ ticks so it would have been nice to have a runner there, but I’m focusing on becoming confident with 1 target before introducing additional targets to manage.

I was hoping for a triple-double today, but my small mistake in 6E prevented that and my greed on ES left me empty-handed there as well.

ES: 1 loser: -20 ticks
CL: 1 winner: +20 ticks
6E: 1 loser: -4 ticks

Attached Thumbnails
shodson's Trading Journal-20100409-gap-guide.png   shodson's Trading Journal-20100409-es-fail.png   shodson's Trading Journal-20100409-6e-bail.png   shodson's Trading Journal-20100409-cl-win.png  
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  #226 (permalink)
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Monday, April 12 - The gap was almost non-existent so wasn't worth fading.

Saw a breakout on the 6E but entered a bar too late because the volume wasn't there on the break-out bar. Got 2 ticks from my target then turned around for a loser. Didn't follow my rules, was trigger happy and hoping I'd get more follow-through. Shame on me.

6E: 1 loser: -12 ticks

Tuesday, April 13 - Gap odds were poor, so poor in fact I considered just taking a gap-and-go anti-fade trade but I haven't really done that before but that would have been a good idea as the market broke down hard in the 1st hour. I got a small scalp as ES made new lows on good volume.

Took a hi-vol breakout on CL but it was a head-fake and I got stopped out, but then made the move I was originally hoping for and then some.

Took another hi-vol breakout on 6E for a nice winner.

So the 6E and CL trades canceled themselves out and I'm left with a small gain on the day due to the ES scalp. I should be trading more contracts on ES since my targets and stops are much smaller, dollar-wise, than what I'm doing on CL and 6E.

CL: 1 loser: -20 ticks
6E: 1 winner: +16 ticks
ES: 1 winner: +6 ticks

Attached Thumbnails
shodson's Trading Journal-20100412-6e-fail.png   shodson's Trading Journal-20100413-gap-guide.png   shodson's Trading Journal-20100413-gap-play.png   shodson's Trading Journal-20100413-cl-fail.png   shodson's Trading Journal-20100413-6e-win.png   shodson's Trading Journal-20100413-es-win.png  

Last edited by shodson; April 13th, 2010 at 03:22 PM.
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  #227 (permalink)
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Wednesday, April 14 - Great gap probabilities and profit factors so I had to take it, though I was worried as the market has been so bullish I never get excited about shorting ES these days. Turns out I was right and I go a loser. I also scaled in a 2nd car half way to stop loss as these can often go towards your stop then turn around and fill. I figured the 2nd car gave me a 1:3 risk:reward ratio so if I got filled the 2nd would be a nice kicker and my loss would only be half as normal as if I went short at the open. I'm still playing with this.

Missed the big post-news breakout on CL. I tell myself I would have taken this but I was a little tentative anyways since the news gap was so large, but if I had followed my rules and not been distracted by a family need it would have been a winner.

ES: 1 loser: -21 ticks and -10 ticks

Attached Thumbnails
shodson's Trading Journal-20100414-gap-guide.png   shodson's Trading Journal-20100414-gap-play.png   shodson's Trading Journal-20100414-es-entry.png   shodson's Trading Journal-20100414-es-stopped-out.png   shodson's Trading Journal-20100414-cl-missed-winner.png  
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  #228 (permalink)
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Thursday, April 15 - Good gap setup again, but I felt better about this one since it was a down gap and the market has been bullish. I also heard that Rob Hanna published (sorry, no link) that the 15th and 16th of April (tax days) are usually bullish as people get in their IRA contributions before filing and the money is put to work. The gap was very small which I didn't like. The market chopped around ahead of the Philly Fed minutes at 7am, then after the news the market started looking more bullish so I increased my target to the extended target. Price continued upward and hit my target nicely.

Saw support violated on high volume so I went short for 20ticks. I wanted to increase my target to 30 or 40 ticks as I thought it would probably break or test the support level below it too, which it did, but I'm just keeping it simple on CL for now while I get used to it, just targeting 20 and risking 20 with 1 car when I think I see a good setup.

Natural gas had another day of huge moves on its inventory reports. Going to keep watching this one.

I couldn't find any good setups on forex so I didn't get a shot for the elusive triple double. I'll take a double-double any day though, especially protein style with fresh onions and a vanilla shake.

ES: 1 win: +11 ticks
CL: 1 win: +20 ticks

Attached Thumbnails
shodson's Trading Journal-20100415-gap-guide.png   shodson's Trading Journal-20100415-gap-play.png   shodson's Trading Journal-20100415-es-entry.png   shodson's Trading Journal-20100415-es-moved-target.png   shodson's Trading Journal-20100415-es-win.png   shodson's Trading Journal-20100415-cl-win.png   shodson's Trading Journal-20100415-ng-news.png  
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  #229 (permalink)
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Friday, April 16 - Options expiration, usually a weird and unpredictable day. The gap guides for ES were not that compelling so I didn't take a gap trade, though I considered getting in at a lower price. I had a buy order in at 1200.00, price touched it but then immediately bounced up for 6 points like I thought it might. Bummer. I cancelled my order and just watched the market. Then the Goldman Sachs news hit and everybody lifted their bids. I thought about going short because it broke support with high volume but it kind of caught me off guard and I thought initially it was an over reaction to the news, as it started to recover from the initial spike down, but the market had a different opinion and pushed lower. Oil, gas, and forex all sold off. There was no rotation into safety, everybody was selling everything. Even gold got hammered.

So I didn't take any trades, maybe because of fear, maybe because of uncertainty in the face of so much new volatility. Once I saw the big red bar I turned on CNBC, which I usually don't do, to see what was going on. I kept it on, which distracted me as pundit after pundit kept coming on trying to dissect the news and the reaction to it.

At one point the DOM on CL just stopped, so I loaded it up on thinkorswim and it was stopped there as well. They later announced on CNBC that the CME shut down some electronic trading during the height of the Glodman news. That also freaked me out. I couldn't imagine what I'd do if I was in a position when that happened. That may have been the point where I decided it was too dangerous to play. So in the end, I protected my capital and kept my money on the sidelines.

Today was a good day to own VIX calls.

NO TRADES

Attached Thumbnails
shodson's Trading Journal-20100416-gap-guide.png   shodson's Trading Journal-20100416-gap-play.png   shodson's Trading Journal-20100416-es-no-trades.png   shodson's Trading Journal-20100416-cl-no-trades.png   shodson's Trading Journal-20100416-6e-no-trades.png  

Last edited by shodson; April 17th, 2010 at 06:09 PM.
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  #230 (permalink)
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Monday, April 19 - Was up late and watching Bloomberg TV and got the urge to trade the London open because I wanted to trade its reaction to the Goldman Sachs news. Everything quickly opened lower and the trend on MTFs was short, so I only looked for short entries. Got short ES and CL on pullbacks.

My first ES trade stopped out, perhaps my stop was too tight. Once it turned around and went below the EMA I put another short order at the EMA and got filled. I thought about having a larger target as it would probably re-test the lows but I kept it at 2pts. The 2nd trade did win so I was scratch on ES. It did re-test and make new lows like I suspected though.

On CL I went short on a pullback, targeting 20, stop at 20. Then I realized I wanted to put my stop above the recent swing high for a better shot to keep me out of trouble, so I also increased my expectancy to 30 ticks. I wanted to make it bigger as if it broke down to there it would probably get continuation lower, making new lows, but didn't want to get too greedy. If I had more than 1 car I could had done a runner but my plan doesn't allow more than 1 car right now.

Anyways, I went to bed with the CL and 2nd ES trade open and woke up to 2 winners. BTW, CL went +100 ticks lower from my entry, would have been a nice runner.

Looked at taking a gap trade. All 4 indexes opened in the D-CL with mediocre probabilities, so I didn't take a gap trade, especially after such a volatile OpEx day making the daily bar so large. The gap did fill nicely and quickly with little heat in the first half hour.

ES: 1 fail, 1 win: -8 and +8 ticks
CL: 1 win: +30 ticks

Attached Thumbnails
shodson's Trading Journal-20100419-cl-entry.png   shodson's Trading Journal-20100419-cl-win-lot-left-table.png   shodson's Trading Journal-20100419-es-first-trade-fail.png   shodson's Trading Journal-20100419-es-scratch.png   shodson's Trading Journal-20100419-gap-guide.png   shodson's Trading Journal-20100419-gap-play.png   shodson's Trading Journal-20100419-es-gap-filled.png  
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