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shodson's Trading Journal
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shodson's Trading Journal

  #81 (permalink)
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True, hindsight is 20/20.. but how are you going to have any clue what is going on when you are completely ignoring all the european and early morning action?

Most of my best trades on ES start during the 'gap' which doesn't exist according to your chart.

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  #82 (permalink)
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sefstrat View Post
True, hindsight is 20/20.. but how are you going to have any clue what is going on when you are completely ignoring all the European and early morning action?

Well, I had another chart from which I saw the pre-market ups and downs before the open, but I wasn't in tune with the Asian/European markets news-wise, I spent the pre-market going through some other things and failed to get an overnight news update and outlook for the day.

As for the gap, it was there, just small (3 ticks). In cases like these MTG usually targets the extended target,if it looks favorable, which was 2.2pts beyond gap fill. I think they were targeting 1085.50, which it did reach when the consumer sentiment report came out and the market lost all of its bids.


sefstrat View Post
Most of my best trades on ES start during the 'gap' which doesn't exist according to your chart.

Can you elaborate more? You mean in the after/pre-market hours? And how/why are you more successful during this time period?

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  #83 (permalink)
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shodson View Post
Can you elaborate more? You mean in the after/pre-market hours? And how/why are you more successful during this time period?

Because off hours is typically when the players stack up on positions before a big move, also there are less noise traders during this timeperiod and thus less noise which makes it easier to read the intentions of the players.

On ES there are certain types of divergence setups that happen somewhat frequently during NY session but relatively rarely during early London session, when one does happen in that timeframe it is very significant (ie it suggests an impending pullback/reversal which will persist for several days at the very least).

The reason this happens is because before major reversal players want to trap as many people as possible into bad positions, thus you will see higher volume and more vicious stop hunting tactics than are normally present.

(Note that what I am talking about is more complicated than a single divergence as it seeks to trap both noise traders and smarter traders who take signals based on mean reversion and/or divergences)

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11/16 - Odds in gap fill trades were awful, so I didn't try to fade the gap.

I reduced my position size and am focusing on scalping 1pt a day. Upon success will increase position size as confidence builds. Got a lot of pullback opportunities this morning. I missed the first one as I took my eyes off that chart for a couple of minutes. Tried to get the second one but didn't get filled. Finally got filled on the 3rd one and got 5 ticks (yeah, more than 1 pt). Done for the day.

ES - 1 winner, +5 ticks

After looking at these pullback trades for a while now I've noticed you usually don't get more than 3 pullback entries on the same trend move. Taking that 3rd one was a little worrisome as I was afraid the bull run was coming to a close and the guys in the MTG trading room were eagerly looking to short, but I stuck with it and, at least this time, it worked out for me. But if it was a 4th pullback I would have been much more inclined to avoid it.

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shodson's Trading Journal-es.png   shodson's Trading Journal-gap-guide.png   shodson's Trading Journal-gap-play.png  

Last edited by shodson; November 16th, 2009 at 06:40 PM.
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  #85 (permalink)
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11/17 - I went ahead and took the opening gap play this morning. The odds weren't amazingly favorable but good enough. I got my gap fill but didn't wait around for the fill of the extended target (1108.25) so closed out the other contract at small profit as well.

While that was developing I was considering trading some pullback trades on the YM but I wasn't really ready to do so (didn't have a DOM up, wasn't sure what I'd want to target) because I didn't want to trade pullbacks in ES while I was already in ES with a gap position. Anyways, of course, I missed a good opportunity there but that's OK, I didn't try to over-do anything or over-extend myself and stayed focus on my gap trade. Maybe next time I'll try to be more prepared.

ES - 1 winner, +8/+6 ticks

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shodson's Trading Journal-es.png   shodson's Trading Journal-gap-guide.png   shodson's Trading Journal-gap-play.png   shodson's Trading Journal-ym.png  
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  #86 (permalink)
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11/18 - Did not fade the opening gap. In retrospect it was very small and there were too many other risks. However, I failed to set my alarm the night before so I couldn't have traded it even if I wanted to.

I did take one trade, a small pullback trade on the YM as I had it up in the morning. I've never traded the YM and never tested this strategy on it. Considering all of that I only traded 1 contract and got out with a small loss. This reinforced how I should stick to and master markets I know before venturing into other markets. Meanwhile, the ES fired off some nice pullback trade signals during the first hour. However, I didn't have much time that morning since I got up late, so I missed these.

YM - 1 loser, -10 ticks

Later in that evening I hosted my Options Meetup group. We had a great crowd, went over a lot of income-based strategies (buy-writes, collars, iron condors, etc), met a few fellow NT traders as well.

I speak at USC this Saturday, 10am, on "Algorithmic Trading in C#". The organizers want me to speak at a second time slot due to high demand for my topic. I better start preparing my slides.

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11/19 - Bad odds in gap trades so I didn't take any. Good thing too, the market opened with an 8+pt down gap and rocketed further down at the open.

Took a quick pullback trade a few minutes just after the open and hit my target. I don't want to trade anymore because there is lots of news coming out at 7am (10am EST) as well as a Geithner speech at the same time so I don't want to take anymore risk in front of that. There were a lot of pullback winners before 7am though.

ES - 1 winner: +4 ticks

Been glancing through The Complete Turtle Trader and playing with variations on some of their strategies.

Check out this chart after 11 days of an uptrend in a bull market.

Attached Thumbnails
shodson's Trading Journal-es.png   shodson's Trading Journal-pullbacks.png   shodson's Trading Journal-turtle.png   shodson's Trading Journal-day11.gif  

Last edited by shodson; November 19th, 2009 at 11:39 AM.
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  #88 (permalink)
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Shodson, new to this forum and today going through some of the journals, including yours. Thank you.

A while back you mentioned scale trading. I picked up a wrinkle on that from somewhere years ago: scale trading spreads. Take highly correlated instruments (like TY-ZN or CL-HO or W-C). Then apply very simple math to create a 'zero' line around which it oscillates. Then scale trade that. When the redrawn spread is above the zero, sell every X points or X$ (i.e. $500). If it goes up again, sell again at +$1000 from zeroline. If again, sell more at -$1500 etc. Each entry has profit target of, say, $500.00. No matter how far up it goes, when it comes back to the mean all positions will have exited with their $500 profit. Furthermore, if it goes up to -$2500, say, and then goes down to $2000 and that position has exited with its $500 PT, it might go back up again to -$2500 in which case you re-enter.

I put this into an excel SS but lack programming skills to calculate c&S especially with rollovering issues. These are simple in theory but tricky to code and I can only do basic stuff in Excel.


Attached: pic from Excel SS showing the HO-HU spread oscillating around a zero line over many years. Not updated but with some effort I could be. Last time I looked - can't find that particular SS for pic - sometime early this year, it was basically the same deal.

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  #89 (permalink)
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Two more charts from same SS telling story a little better.

#2 shows the cumulative profits assuming entry at $500 per scale, single contracts only.

..ST: shows the same as the first chart but zoomed in so you can see the oscillations better (Jan 2004 - Aug 2006), including how often the system would take a trade, exit on a profit, then re-enter again. The horizontal lines show the $500 step PT's/Entry scaling levels. The magenta and blue lines show the raw contract data from which the 'zero line' - the key to the whole thing - is derived. That might need to be optimized, but probably only once a year or less, if ever since it is almost impossible that Crude and Heating Oil prices will completely decouple UNLESS heating oil is no longer used as a general commodity. CL and RB (unleaded) however, will probably not decouple for many years to come. And even if they do, there are many other such highly correlated pairs. Basic arbitrage.

(PS. I just noticed that this one IS HO- HU (the old Unleaded contract which ended a while back), so disregard business about CL versus HO above, but it really doesn't make any difference in terms of the underlying principle.)

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shodson's Trading Journal-bm-shodsonspread2.png   shodson's Trading Journal-bm-shodsonspreadst.png  

Last edited by cclsys; November 19th, 2009 at 12:42 PM. Reason: clarifying about HU-versus CL, dating ST chart in comments.
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  #90 (permalink)
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cclsys View Post
Two more charts from same SS telling story a little better...

So, when the histogram hits a new lower horizontal line, what do you buy/sell? Do you buy HU and sell HO, or vice versa? Or do you just buy one, if so, which one?

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