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Making a Living with the Micros


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Making a Living with the Micros

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  #1 (permalink)
 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

Making a Living with the Micros

I am back! After being away for a bit, I am back on Futures.io after further refining my trading through some formal education and, of course, the ongoing school of hard knocks. LOL. FIO is great, and I am happy to help some others perhaps avoid some of my pitfalls and become profitable traders.

I truly believe I have arrived at profitability FINALLY after 15 whole years. I know 15 years is a long time, but several profitable traders I know have had similar timelines, so it may actually be close to the norm for guys and gals who have "made it."

There is so much to learn, and the biggest lesson ironically is not about entries, but about profitable exits and stop-losses and position sizing. The preservation of capital MUST come before new profits.

But I am jumping the gun...

This journal is the continuation of my two prior FIO journals:

1)

In the above journal, I showed my progress on my OneUp trial and eventual live account through the MES funding company.

But once the new CME micros came out, I decided that trading my own money was the better way to go, and I started a new journal:

2)

I encourage you to skim/read both of them.

My journey since I last wrote has certainly been interesting, and I will document it in these pages.

I started with $10,000 in my live account about 6 weeks ago, and I grew that to $14,000. This is 40% compounded growth in 6 weeks, or about 1% per day. I just withdrew 50% of my profits ($2,000). Of course, $2k in 6 weeks is far from a "livable wage," but it is a great step in the right direction.

The market is at new "All Time Highs" (ATH) just above 4000 on the ES right now, and things are strange because of all the stimulus and inflation. But my goal is to continue to grow my account slowly and carefully using the micros, with an average of about 1% to 2% per day, and taking out 50% of my profits each week.

By the end of 2021, I think I can be at the place where I can be earning $4k per week ($800/day average) and withdrawing $2k of that each week, earning $8,000 per month day trading futures.

Once my account gets to $20k, I will try the E-mini's but for now the micros are still the name of the game.

I invite you along for the ride.

Stay tuned....

My avatar continues to call out, "I am free!" Can I keep him this happy? We shall see.


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  #2 (permalink)
 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

My story...

I had a good-sized trading account in 2005 (over $100k), but like many traders, I watched in horror as my account started to shrink instead of grow. What was going on? So little did I know....

Stocks. I paid for a newsletter with stock recommendations, and those recommendations often failed. And then the good recommendations seemed to not keep up with the losses.

Options. So I turned those recommendations into options trades - only to accelerate my losses. One of the newsletters even was taking options on futures! (... Talk about some firepower!) I tried a real options advisory service, but it seemed like they really had no clue either.

Algos. I tried some algorithmic trading. I recognize now that the system I bought was over-optimized and blew up when market conditions changed. Plus I actually let it run overnight one time... ouch!

Forex. My very first FX trade was right before a huge AUD move, and I went the wrong way and then doubled down. Ouch. I tried several services and saw potential, but ultimately my fear and greed kept me from profitability.

Futures. I began to settle on the YM as my preferred trading vehicle. I liked the $5 tick and the whole numbers (vs the .25 increments of the ES), LOL. After some coaching, I became a proficient scalper in ranges, but my Achilles heal was the constant desire to "fade" the trends.

Back to FX. Once my account was below $20k, I turned to back to FX (because of the lower margins) and started to finally figure out that my entries were not so bad, but it was my money management that sucked. The Discipline to take the inevitable losses was severely lacking. And unfortunately, psychologically a string of losses only accelerates the frequency of more bad trades.

While trading FX, I stumbled across ZuluTrade and watched in surprise and almost amusement how hundreds of signal providers repeatedly blew themselves up. "Martingale" appeared to be the default strategy, and the explosions/implosions were dramatic!

I carefully analyzed hundreds of winning systems on ZuluTrade, and I concluded that I could do well if I just set a fixed stop and honored it no matter what. I started my own system, and after dozens of failed attempts, I performed my way into the top 50 systems out of 10,000, and actually had over $1M worth of accounts following me. Once again, a news release did me in. I honored each stop loss, but it was a multi-day move and I kept trying to fade the move and lost the confidence of my subscribers.

And then the Dodd-Frank act killed the US Forex market. I went through about 10 different brokers because one-by-one they all caved to the new ruling that precluded USA citizens from international brokerages. In frustration I went back to futures, but with a small account.

"Back to the Futures". (tribute to Michael J. Fox) With my now-small account, and very frustrated, I went back to futures and did my best. But my account was now below $10k. The pressure to perform was great, but I couldn't pull off the consistency and had some crazy losses as I got married to wrong-footed trades. But I felt like I was making progress. And then I saw an ad for Top Step Trader.

TopStep/OneUp/Leeloo. I was saved! (Or though I thought.) The enticement to "earn a funded account" was real. I could now trade with a large account again. TST was the first. I gave them a lot of money, but never got funded. OneUp was next. I gave them a lot of money. I earned and traded 4 live accounts, and I actually withdrew live funds one time. Sometimes I failed because of the picky rules about news releases, but usually it was a discipline issue. Leeloo was next, and I earned another live account. They have fewer rules than the other two, but again, my own lack of discipline killed me. I still believe that these companies can be good for traders who know what they are doing, but considering that my own survey of traders shows the average trader spends about $7k on combine fees - I do NOT recommend them for new traders. Plus, you have to share your profits with them. Instead...

Enter the Micros! The CME introduced contracts 1/10 the size of the E-minis. I realized that if someone took the $7k they would have spent on combine fees and opened their own live account and traded the Micros, they could trade - as if - they had a $70k account for E-minis. I began to really focus on DISCIPLINE and applying what I had learned from FX--to TAKE THE SMALL STOP LOSSES NO MATTER WHAT. And guess what? It started to work! My account was actually growing again.

I think this is the key: Only when a trader is willing to trade the "I don't care" size, can he or she be truly objective. Why couldn't I seem to do it with the larger E-mini's? I think it was because as a losing trade gets larger and larger, the brain convinces us more and more with each negative tick that "It will come back. It will come back!" In fact, we then double down, adding to our error. And guess what? This "averaging down" actually works most of the time! The market actually reverses and brings us back into profit. So we reinforce a very bad habit. Why is it bad? Because every few days the market doesn't return home, but finds a new place to live. And when this happens, the averaging down absolutely destroys our accounts and our happiness.

So here I am at the present day. I have made some friends who regularly make $500 or more each day, and I want to join them. My account is small at about $12,000 but I have FINALLY (mostly) eliminated big losses and I truly believe that I can really make this work. It truly has been a long time coming. I have painfully learned some great lessons that I am willing to share with you on the following pages. I know each trader must navigate their own trading path, and get themselves up the MANY times they fall, but perhaps I can shave a few months off your journey with something I say. The journal also helps me personally to stay focused on what matters.

Can I get regain my $100k someday soon? Let's find out. I am just a curious as you may be.

In this journal, I will report my progress, show trades, and share lessons learned.

Let the fun begin.

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  #3 (permalink)
 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received


Tuesday. 2:30 ET--90 min before the close.

The Bullish Case

This morning we got new ATH's (all time highs) close to 4076 on the ES. "Reopening" appears to be the theme of the entire world right now, and everyone should be bullish for the next month. Right? So why the selloff beginning around 12:30 ET? Feels like at least a few market participants are getting a bit skittish up here in the nose-bleed section of the stadium watching the players below. And after 7 days of UP, UP, UP, is it not natural for some profit taking to appear?

Well, I am here to say - as one who has paid a very dear price - that there is no such thing as "overbought" and the market here can easily keep going up to 4200 or even 5000 over the next few months! I have been "fading" trends for 15 years, and it works well sometimes, but often it just fails miserably - especially if the trend is UP.

Why have I always expected a turn? I am not exactly sure. But while most traders "grow up" following the trends, my first and second mentors were scalping-kings, and I watched them daily scalping up a storm. They faded everything that moved! While everyone else was waiting patiently for a breakout, they traded the edges of ranges. Then while everyone else was enjoying the new trend after the breakout, they got just a small piece of the new trend followed by the small counter-trend, followed by a small piece of the continuation. Then they got all the reversals at the end of the trends. It was fun to watch. I tried to emulate them. I tried then, and I continue to try it now. And I do it very well - most of the time.

Fortunately, I have tempered my constant scalping by holding longer in clear trends. It has made a lot of difference.

The other thing that has helped a lot is that I now seriously "consider the bullish case" each day along with my natural contrarian tendencies which say: "If everyone is doing it, it must be wrong. I will be smarter and go the other way!" But my old way is just DUMB!!!! The herd CAN be right, and trends can go on much longer than anyone expects.

Consider--

The Fed. For many years now true "value" in the market has been completely irrelevant as the fed has gone through "QE1 to Infinity and Beyond!" (homage to the movie Toy Story) and now seems to weekly have a new stimulus plan.

The Covid Reopening. So many things got shut down, and thanks to the vaccines now available, the world is opening back up. This is so bullish.

Financial Advisors. In Dec 2020, JP Morgan set a 2021 S&P target of 4,400 to 4,600. What else needs to be said? Advisors rarely advise their clients to sell; they get bonuses on the AUM (assets under management)! And buy and hold is a lot less work.

Government Tendencies. House, Senate, Presidency run by big spenders. Well this is always the case, isn't it? Republican or Democrat, they all spend like crazy and continue to throw (our) money around, and Wall Street loves it.

And finally--

Bulls make money! A recent (and wealthy) mentor told me that 98% of his trades are long. He also said that 80% of his profits were from longs and 20% from shorts. This totally makes sense since the market has been going mostly UP for the past 12+ years. It does show that his shorts are significant winners, but they are few and fast. Better to be long if you actually want to make any cash. The perma-bears are losers. (Actually I have a good friend who is SHORT ONLY, but he has an incredible amount of patience - unlike me - and he waits to pounce on the short side only when the trend is clearly down.)

Of course we may get a catastrophic downturn again sometime. The Fed may decide to tighten soon as bonds are acting a bit strange. But the Fed will be there to bail us out all over again if we go over a cliff. On a big scale, is it not best to just step aside for the blink of an eye and start buying again once a reliable base has been established? (Of course I will be trading both sides.)

In the meantime, I have been much more willing to go long, and I will explain when and how I do it - soon. What has this meant for my trading? I used to take about 80% shorts and 20% longs, and now I am at about 50/50. This is a big recent positive change for me.

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

Thanks for the "Thanks" so far on each of my posts today. I really appreciate it.

It's actually quite funny, but I was getting ready to start this new journal just when Big Mike announced the April FIO Journaling contest sponsored by Jigsaw! You see that I was the first to enter the contest, LOL.

Will you please help me cross the journaling contest finish line in the top 3?

Just click on the big gray rectangle below this line and then click the "Thanks" button on my official entry post on the contest page:






I appreciate it,

sstheo

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

Money Management

Proper contract sizing and loss management is the MOST IMPORTANT of the 25+ topics I want to share, so logically it comes first.

Preservation of capital MUST come before pocketing big profits.

As I mentioned before, I became a "demolition expert" many years ago. Someone might think I actually enjoyed blowing up my accounts! I got really good at

1) Trading too large
2) Moving my stops or trading without any stops at all
3) Adding more contracts when my confidence in a trade is high
4) Losing all my money over and over again and hating life. I mean really hating life.

Do the above four for long enough, and you will become an expert demolitionist like me.

So what is to be done?


Have Reasonable Goals.

I know traders who can routinely earn 30% on their accounts in just one day. Seriously. They are that good. Trading Gods? Perhaps. But the rest of us mere mortals need to be just a bit more patient and prudent.

One of the problems with the funding companies like TST/OneUp/Leeloo is they are looking for the best traders, but in the process, they completely nullify the "safety" portion of the equation by setting a qualifying target and a one-month goal that requires an average daily performance of 9%. (15 contract account: Earn $9k in 20 trading days with a max loss of $5k. That is $450/day. $450 is 9% of the max draw down of $5k) Oh, of course you can do it in 2 or 3 months, but then you have to subscribe for another month! And 2 months still requires 4.5% per day....

1% per day will take $10k to $100k in 12 months. 2% per day will take that same $10k to $1 Million in 12 months. (And starting with just $1,000 and earning 3% per day will get you $1.2M in 12 months) Certainly being consistent at 1% to 2% per day will bring great rewards!


Trade Small. Try the Micros.

Before the micros, it was impossible for me to not "trade scared." My account was small, and each loss on the ES/YM/NQ was huge. I just know that being undercapitalized was damaging psychologically. I couldn't think clearly.

When the CME introduced the micros, I was finally able to lift the fog from my tiny brain and get this show on the road. By fixing my stops small and just simply moving on to the next trade, I was able to let the past go.

How big of a position should you trade with? Certainly smaller than your margin will allow! Better yet, trade the "I don't care size." If you feel like putting a hole in the wall when you take a loss, you have not arrived there. If you still invent new words that sound like the upper characters on your keyboard (!@#$%^&), you have not yet arrived!


The Best Baseball Players in the World Strike out 60% of the Time: Good Psychology is a Must.

It's true, a .400 batting average puts you in the top tier of baseball players. What does this have to do with trading? Everything. Those batters know, each and every time they get up to bat, that probability is not in their favor. But they go anyway. Why???? Because they know that overall the stats are in their favor for the season. Likewise, a losing trade is just part of the trading game. Let the past go and prepare for the next "at-bat."

The late Mark Douglas is famous for his book "Trading in the Zone." He wrote and spoke often about good trading psychology. "Anything can happen" he'd say. You can be a great trader and still have many losers. The market is random, but you can have an edge and come out ahead at the end of the day and week and month. Don't beat yourself up if you take a loss.


Set a Daily Goal and Stop when you Reach it.

For many months I had a goal 2% per day. One of the things that really helped me is to stop after I reached my goal. If you are in a foot race, you stop when you cross the finish line. You breathe. You might even sit down. You congratulate yourself for the win. You prepare for the next day's race.

Some say, "Take what the market will give. Don't limit yourself. You need the big days to make up for the small days." These are all valid ideas, but for someone who is trying to be consistent - perhaps for the first time - baby steps are the order of the day.

So set a goal, do your best to reach it, and then move on to other things in your day.

And finally we get to the biggie...


Take the stop!

Yes, it hurts to take the stop. But blowing your account hurts even more. Convinced the market is going to reverse at 4000 ES? Great. But what if you are wrong? Let it go. Take the stop. You can always get in again. And your mind will be clear. And you will still have money in your account to trade.

You are not trying to show what a great trader you are, you are trying to end up positive at the end of each day. Is it better to be right or make money???


From Acorn to Oak Tree.

This is the goal. It takes time. Water it. Weed around it. Protect it from the pests. Give it sun. Do it again and again. Maybe give it some fertilizer from time to time. Be patient. You can do it.

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
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The market awaits a Fed announcement in two hours.



And now is a great time to share one of my new toys: Fibonacci retracements and extensions. I will talk about them more in another post, but know that at this point, the T1 is the local low at 4060 and T2 is the -23% extension at 4057. Let's see if prices get there.



This is an ES chart with 7 tick range bars. The time is US Mountain time. The MA is a 20 period EMA.

The 50% retracement and the 61.8% retracement are excellent at holding price much of the time. The 50% is also called the Half-way back (HWB). I used to think fibs were hocus-pocus, but after seeing the evidence (many times to the tick!) I am now a believer, LOL.

--------------------------------

UPDATE after the FOMC Minutes: T1 at 4060 was hit, but T2 was missed by about 5 ticks.

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

Developing Your Trading Brain

In case anyone is wondering, I am doing these posts mainly for myself (it is my journal after all!), but I am happy to share. And these posts help me organize my thoughts and reinforce the good stuff I have learned over the years. I recommend journaling to everyone!

Yesterday, I did my most important post. It was about Proper Money Management. I will be reading it over and over again. And I may do several more posts on the same topic. It is so vital to survival to approach the market with humility and patience, knowing that the price action is truly unknowable, but that if we can find an edge coupled with good money management we can win long term.

I laughed out loud the first time I heard that some big trading firms hired professional "Trading Psychologists." But then I remembered all my struggles. They were not about good entries, but about stopping the bleeding on bad trades. And then the light went on. Maybe trading really is 90% psychological and only 10% technical!

Here is a great Investopedia article on the topic: https://www.investopedia.com/articles/basics/13/how-to-develop-trading-brain.asp

I love this idea summarized from Norman Welz, whose book is discussed in the article. (By the way, Welz believes trading is 100% psychological).

"No other profession creates so many and such intense emotions and reflects so much of our personalities. The fundamental role of trader psychology tends to be underestimated and too much emphasis placed on the technical side. While both are essential, it is arguably the right mindset that differentiates successful from unsuccessful traders. However, learning the technical aspects of trading is more straightforward than acquiring a top-notch trading brain. The latter generally entails working intensely on one's own personality traits and eradicating entrenched behavioral patterns. This process is not easy and requires dedication, time, and often, the aid of a skilled coach. Nevertheless, the results are very likely to reap dividends."

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

Here is my fast M2K chart. It is 3 tick Renko bar with an OBV indicator (squiggly blue) plus some channel lines.

I am posting this because I wanted to share part of the mental game we have to play while trading.




This chart shows two profitable short trades.

Notice the exit on my second micro trade at around 2,218 in the yellow circle. I was up about $20 profit and was looking for about $30 when it started to pop back up. Once the profit dropped to only $8, I was concerned about losing it, so I had to exit.

Of course, what did it do? I exited exactly at the high tick on that little pop - and then the price continued down, to and through my profit target further down below. It was just waiting for me to get off the bus to keep going.

It is maddening! (I won't lie. There is still emotion here... ) But this is exactly what my previous post is all about. This is a mental game. Can I beat myself up over taking an $8 profit? No I cannot. However, if I had let that $20 profit turn into an $8 loss, then yes... maybe.

We just keep going. And going. We don't swear. We don't throw stuff. We learn from the past and keep going.

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received

The market is in a tight range, again on a day with new All-Time Highs around 4,093. Some say we will get up to 4,150 because it completes the huge channel or bull flag we are in. It could happen!

But I don't swing trade. And I just took a short on the micro YM, the MYM for $12 with one contract. I am sharing it to show one of my favorite setups:

"Rotation back to VWAP"

I love this range condition trade using the VWAP as the magnet. If you haven't plotted the VWAP before, I recommend it, as many financial firms appear to use it.



I am using a 1 tick Renko bar on my fast MYM entry chart.

Rationale for short entry at 33,345:

In addition to
(1) being at the high end of the range, and
(2) having the VWAP below us, we also had
(3) the OBV saying the big boys were done buying (OBV below price).

So I jumped on board.

The OBV is like the Cumulative Delta, which I also use sometime. I will post more about it later, but know it is also one of my favorite new toys.

This $12 MYM (24 ticks!) is like a $120 YM trade.

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 sstheo 
Holladay, Utah, USA
 
Experience: Intermediate
Platform: Multicharts
Broker: AMP/CQG
Trading: MES, MYM, MNQ, M2K
 
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Posts: 177 since Oct 2012
Thanks: 130 given, 636 received


No More Mommy (The Guru Trap)

Who doesn't want the answers to the test? Who doesn't like free stuff? Free money?

A futures signal room?

SIGN ME UP!!!!

Hold on a sec. We all know we should be learning how to fish and not just grilling the gorgeous one handed to us.

Yes, we need education....

But the problem is an insidious one. Where does the education stop and the dependency begin?

My first mentor has now retired from teaching. I bought his course. I followed his thinking in his live chat room (mostly text, but sometimes voice). He never gave specific trades, but would just use words like "Bullish above 3900" or "We are running into resistance at 4000." It was $50 per month. It was great!

But the price was too low.

Why?

Because it way too easy to justify staying in the womb. Then not cutting the umbilical. Then not wanting to leave the warm breast full of milk.

I think it took me two full years before I really tried to crawl and then walk on my own. Honestly, I should have done it much, much sooner.

I remember when I didn't renew the subscription. I FELT SO LOST... And I signed up again after a month. And repeated that cycle a couple times.

Trading is hard. Apparently, over 90% of people lose all their money in the first year! It is especially hard to go it alone. I get it.

But eventually I made the transition. I weaned myself from my mommy...

And I am glad I did.

Yes, I still want people to hand me trades.

But I resist.

I am finally confident in my own analysis and execution, and have become (mostly) profitable.

YES. Egg > embryo > fetus > newborn is a true miracle. And crawling, walking, and talking are miracles.

Learning to read charts properly and then learning to fight the demons of fear and greed are true "trader's miracles."

And based on the stats, "self-sufficiency" as a trader is also a miracle.

And most do not get there. The effort is monumental. The financial cost is huge. The time cost is gargantuan. The emotional cost incomprehensible.

Candidly, if someone came to me today and said "Should I become a day trader?" I would say "no way."

But here we are. The FIO faithful. Support and ideas. We can do this.

To go back to the womb is nothing but regression.

So...

Get your education, but don't become dependent.

Cut the umbilical. It will hurt. Then eat solid food. Then let Mommy's hand go and walk across the room by yourself. Walk to school by yourself!



How?

After some initial education, develop your OWN trading plan. Test it on sim. Pretend it is real money. Don't do anything else until you are profitable for 10 days in a row. Then use ONE MICRO. Be profitable for 10 days in a row. Take the baby steps! Then go to 2 micros. Then 3. Then 4. Then 5. You will be surprised what 5 micros can bring you in just one day...

The big steps will come.



Now imagine lots of money sticking out of the briefcase.... $$$$


.

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 sstheo 
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New All Time Highs!

Yet again. 12 bull days in a row??? WOW WOW WOW This has got to be some kind of record.

The Fed and the Big Boys of the world appear to have an agenda.

So incredible - the complete suspension of gravity. More power than God.

But who am I to fade the Bulls? Gotta stay long and buy every big dip!

Until I see some serious bear action, I have stopped trying to sell tops, that's for sure.





One thing I know: Things can still turn on a dime. Anything Can Happen!


Internals:

The VIX is still bearish = bullish for the indices (20 ema is neutral to down)
The Up/Dn volume is bearish (red over green and blue line difference going down)
The Adv/Dec issues is bearish (red over green and blue line difference going down)
The Transports are declining (20 sma below the 50 sma)


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 sstheo 
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Hilarious.

It seems that right after I hit "send" on the last post, the market dropped almost 10 ES points from 4122 down to 4012.

Like I said, Anything Can Happen.



The rest of the day and the rest of the week may turn out to be fairly volatile.

You are seeing my favorite 7-tick Range Bar chart on the ES, with a 20 ema.
I have drawn Support and Resistance lines above or below each pivot point.
I define a "pivot" as a reversal of two bars in the opposite direction.
I then remove the pivot lines after they are crossed again more than one time.
I use the Open of each bar, not the H or L for the S&R lines. I consider the wicks and tails to be fake-out areas.

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 sstheo 
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Super Scalping

Part one.

Notice: I am not advocating Scalping as the holy grail of trading, but sharing techniques and rationale for times you may want to consider it. I am actually trying to do less scalping and am working on some bigger trend trades. My hope is that this will still be instructive. As mentioned, 90% of traders lose all their money in the first year. So - if most traders are going for Trends, which occur about 30% of the time, but most traders FAIL, then - just maybe - it would be good for traders to learn some additional skills for when the market is in a Range - which is the other 70% of the time????? Just food for thought...

----

There is no question that I am a scalper. I take a lot of trades. And that number has gone up even more since the Micros came out, because I am finally able to scale in and scale out like the big boys. I consider myself a “Momentum Scalper.”

But I am not "totally crazy" like some I know. Some discretionary traders curiously seem to be trying to give the HFT firms a run for their money, taking over 100 scalps a day off the DOM based on bid and offer volume. Others use tight dynamic channels and "trade the edges" all day long. I call these guys "crazy," but it's simply because I can't go that fast, LOL . . . . I realize it's just a stylistic choice. It works for them, and they make enough after fees for the "trader's formula" to shine in their favor. Good for them. But I am a bit slower...

Three analogies....

(1) YM Slinger. Even though I am not the fastest of the fast, I am still speedy. In fact, I earned the nickname "YM Slinger" from an old friend of mine. Imagine a Wild West shootout and you have the idea. The quicker the draw, the longer you stay alive. Some days, before many traders had taken the first of their three favorite setups, I had already taken about 8 trades for 8 ticks at $5 per tick on the YM and was done for the day with about $250 in my pocket.



I love the sharp-shooter and sniper trading styles that flow logically from this line of thinking. Know your entries and exits to the tick. Many of my entries are at tick extremes on the NYSE $Tick index. The market often immediately reverses when the $Tick is above or below + or - 600. These show emotional extremes in buying or selling. I then aim and squeeze the trigger... most traders are caught off guard while I pocket a little cash. A fast RSI also works wonders pre- or post-RTH session.

(2) Redline Trader. Secondly, I wanted to mention my old manual system called “Redline Trader.” This was the one that got me to the 45th position on ZuluTrade out of about 10,000 systems (before I blew it up). I thought of "Redline Trader" because of the high-end RPM as measured by the tachometer. I saw "pips per hour" as my RPM. But why did I even care about pips/hour?



Well, I am focused on “high-probability” trades, and my thinking was, "the less time I can be in the market, the lower the chance of whipsaw" because of market news and other “unforeseen consequences” (homage to Valve's Half-life2 series). And since the market generally falls 4 to 7 times faster than it rises, I determined that waiting patiently for shorts was the best way to get the most pips or ticks in the shortest amount of time. And it worked! Based on the time in the market, I had the highest pips/hour of any system at that time. An unfortunate result of this line of thinking, however, is that I reinforced my short bias. But I am finally getting over that.

(3) Talon Trader. I also like to think about my trading in terms of an eagle swooping in for dinner. One of my favorite FX systems was called "The Talon Trader." The keen eyes, fast movement, and powerful claws make the eagle a formidable hunter. That is what we do as day traders. Those little ticks and pips are like fish in a smooth lake, just waiting for us to yank them out of the water.

Check out this short incredible video to drive the point home. (Check out the size of that second fish!)



To trade like an eagle, we need to be very precise and patient. I love this analogy.

In all my trading, I am looking for Profitability and Safety. While scalping, profitability comes by racking up a lot of small “base hits,” and safety comes by honoring a tight stops and being out of the market when it is not going anywhere.

If scalping is so awesome, then why am I trying to take bigger trades? Why am I not a multi-millionaire? Because I still struggle often, especially in strong trends. And my discipline is NOT yet perfect on taking my tight stops. So I still have some big drawdowns at times. But these do not invalidate the strategy. The implementation and discipline still need to be perfected.

So, while I am now having some success taking some bigger trades, I continue to be an opportunistic scalper, and will show my setups so you can try if you want.

What exactly are "High probability scalps?” and what is “Momentum Scalping?” and what are the market conditions when scalping actually works?

Stay tuned.

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 sstheo 
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Super Scalping

Part 2 of 5. "High-Probability Momentum Scalping" : Scalping in a Trend.

Again, I am trying to do less scalping and more longer trend trades, but my foundation of fast, short-term trading has served me well, and I am sharing. Perhaps a few will try it out.

I see so many guys blowing up all the time, and I sometimes wonder if the incessant chorus from EVERYONE (including videos from the CME) to "only trade with the trend" must be a smoke screen to distract retail traders from the true full range of profit opportunities. LOL.

I see scalping as base hits in baseball. Yes, home runs are awesome. But it is the base hits that usually win the ball games. Singles. I am just going for singles most of the time. HOWEVER, I try to give each trade the option to become a home run. I am not automatically getting out. I have a stop set, but I do NOT have a target set most of the time. Thinking about it another way, "Every home run begins as a scalp."

But first, a big hurdle: Commissions. And to that I say "Fuggetaboutit!" Everyone gets up in arms about round trip fees and broker commissions. Yes, I know they add up fast. But let it go for a moment. So what if you are paying 30% of your profits? You just made 70%! And with the micros it is even worse of course, but if you end the day in the green, it was a successful day. Let the broker throw a party for his little daughter... everyone can win here.

But wait! Another big hurdle: Risk:Reward ratio. Everyone (I mean EVERYONE!) pounds the table and says you should only go for trades that have a profit target at least twice as big as your stop loss. "2:1 Risk to Reward ratio!!!" And it took me 10 years to figure out that they purposefully even reversed the nomenclature to confuse everyone (or so it seems). Or perhaps they were just lazy because it is easier to say "risk to reward." In any event, they say "2 to 1 risk:reward ratio", but they really mean "2:1 Reward to Risk." Again I say "Fuggetaboutit!" If your win rate is high enough, the Trader's Equation works for scalping just fine. I have an inverted risk:reward ratio of about 1:3. My average win is about 10 ticks and my average loss is about 25 ticks but I have a 90% win ratio most days.

The "Trader's Formula" or "Expectancy Formula" says the following: Average Winner * % winners - Average loser * % Losers = Average profit per trade. In my case this works out to an average of about 4 ticks per trade.

Now on to the fun stuff.

Why consider scalping? I will let this morning's action on the ES answer that question. 22 points from the pre-market low to the high right before the open. But that 22 point move really had 54 points of easy movement inside of it. 22 vs. 54. No, I didn't catch all the moves of course, but it's a pretty eye opening.





Yes, I try to scalp with the trend. But I also like to "fade the edges" of ranges, and I love to try to determine end-of-trend tops and bottoms/reversals. I will expand on each of these in future posts, but here are my thoughts on Scalping in a Trend.

Scalping in a trend. Everyone says to "only trade with the trend" and "just try for the meat of the trend." But there are multiple potential entries and exits as seen in the 54-point chart above.

I used to try to get every move.... all 54 points for example. But now I have gotten a bit smarter, and I try to get the pullbacks in the direction of the trend: The first up move of 9 points I would have missed because the new trend had not been established, but I would have tried for the second up move of 5 points and the third for 8 points, and the final move of 16 points.

So I want to "buy the dips" or "sell the pops" in clear trends.

I use larger timeframe (bar sizes) to determine the bigger trend, and then look for my trades in the direction of that bigger trend. I have been trading the MYM the most recently. I use the YM chart on a 10 tick Range Bar and trade the MYM on a 1 tick Renko bar. I have moved to Renko for my fastest charts, but range or seconds all work. I want something FAST.



I generally only go in the direction of the 20 EMAs on both charts. (My favorite indicator of all time is the 50 sma, but I am currently trying out the 20 EMAs as a replacement.) IF I only go in the direction of the fast 20 EMA, I can NEVER be wrong for very long! If the 20 EMA is mostly flat, then I will try to be FLAT myself. I want a trend for this trade. So if it is flat, I will be SOH (sitting on hands).

I am sure to draw my horizontal S & R lines. I have learned that I should not fight these. If I am close to one, then that is a great place to take profits or look for a potential reversal. But not always. Sometime there has been a big down-move or a big up-move in the market and a strong reversal has just started. Or maybe there is a strong trend-continuation. Reading the proper context of the market is vital. Sometimes it is best to stay in the market, as it just blasts right through the S & R levels. Watching the speed of the move can often give a clue too.

There are a lot of variables I watch, but not so many that I have "analysis paralysis." The main two charts are just my larger chart and my fast entry chart - but most importantly my 1 tick Renko. It is the "One Ring to Rule them All."

I will give many more examples of my scalp entries going forward, showing trends, ranges, and reversals.

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 sstheo 
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Super Scalping

Part 3 of 5. High-Probability Momentum Scalping: Scalping in a Range

The market is ranging about 70% of the time. So why do most traders spend all day waiting for a breakout into a new trend? Why are 90% of the traders going after 30% of the market? No wonder the breakouts are powerful and go on for a long time!

I am not knocking trend traders and breakout traders. It works! But lots of traders fail at this too. Often the "breakouts" are false breakouts. Or they get in too late after the breakout and miss most of the profits or get in too close to the high and then get stopped out before a continuation leg. FOMO is alive and well among these traders; if they miss their "perfect" setup, they might not get another trade all day!

On the other hand, "trading in the ranges" has been my bread and butter. I am able to get lots of small trades that add up to some nice days. Remember-- base hits.

And if I miss a trade, Oh Well! There will always be another trade. There is not one ounce of FOMO.

Range determination: We are in a range if...
  • The 20 EMA is flat on any chart.
  • The VWAP is flat and price is within 1 standard deviation.
  • We just had a big move up or down the market will tend to consolidate before moving higher or lower.
  • We have just had several equal highs or lows.
  • The bodies of candles are mostly overlapping.

This is not a precise science! If it looks like a range, then it is. This is where screen time becomes so valuable.

Zoom in on the chart below from today and yesterday. Would you agree that about 70% of the chart below is range-bound?



I draw the box once there are clear highs and lows and it seems like there is a pause in the trend. (I draw a vertical line on the candle that defined the range.)

So now we have a range (on any time frame). Here is a close-up of the last range on the previous chart (and the current price action):




I then draw the mid-line between the highs and lows in yellow so it really stands out.

This mid-line is a MAGNET and pulls price back to it over and over again. So you "trade the edges." This is also called "rotational."

Most traders will tell you when you have a range to shoot for the opposite side of the range. This works often, but I have found this to be too aggressive. My secret is I only go for only 2 to 4 ticks and then wait for the next trade.



Notice that I have added 6 arrows--2 shorts and 4 longs. Each trade was good for at least 4 ticks on the ES or $50 each. Take off commissions, and you have close to $250 using just one ES contract.

This is a great way to trade!

Especially when trading ranges be sure to keep a tight stop in place, because range breakouts can be explosive.

Obviously the price overshoots from time to time, but that is okay. There are often several "false breakouts." But then how do I know when we finally get a "true breakout" and to trade with the breakout traders??? When we have crossed a line double the distance from the midline. This is called a "Measured Move." See the yellow bars I added on the right edge.

What I love about the method I just shared with you is that it is fully scalable to any time frame or bar size.

As mentioned, I also love to use the VWAP standard deviation bands for my trading, and the +1 and -1 SD lines make wonderful boundaries for rotational range trades toward the dynamic VWAP as the magnet. Look at the arrows I drew on the chart below.





So there you have it: Scalping in Ranges.

Next up, Scalping tops and bottoms....

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 sstheo 
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Super Scalping

Part 4 of 5. "High Probability Momentum Scalping": Trading Ends of Trends / Tops and Bottoms

In the previous parts, we discussed the much-overlooked method of scalping for base-hit profits, then focused on scalping with the trend, and then scalping in ranges.

In this part, I will address one of the most challenging periods in all of trading (after news trading of course): when the trend ends. "The trend is your friend until it ends," everyone says, which is really cute, but not too helpful. When does the trend end?????????????

In an uptrend, swing traders are looking for a "lower low" to call a trend change. That's fine, but that might take hours. We want to get in and get out and be done with trading and move on to other stuff in life. In a downtrend, reversals can be explosive, turning into "rip your face off" rallies.

So can we actually make any money with tops and bottoms, or is it just "too risky?" Fortunately, I believe the answer is YES to profits. But the answer is two-pronged.

As mentioned, tops and bottoms usually act differently. Tops tend to have a rounded formation which is due to the fact than many tops often go into a range. On the other hand, bottoms tend to be fast spikes down and then up. This is probably related to the "almost always bullish" market we are in, and the buyers quickly overwhelm the sellers near the lows.

Based on my previous post, you might have a great idea how I trade tops. And you would be right. I trade them like any other range, fading the edges toward the midline. But there is a catch before a reversal at the top. Not only are tops usually close to major Resistance levels, but the last move before the reversal down is usually a major fake-out at the top.

This is the ES from yesterday, April 12:



Notice that the price didn't just gently roll over, but spiked up right before the reversal. MOST traders got wrong-footed at the worst possible time! Could the "big boys" be orchestrating the fake out? I wouldn't put it past them. But the essence is that they had been liquidating positions near 4114 and the last gasp was the spike to 4119. Then after the last of their long positions was sold, they then forced a huge move down and instantly had help from the very longs whom they sold to previously! Stop-runs can be fast and furious. It actually would be quite comical if it weren't so poverty-inducing. Again, when you see a range condition, you need to see a solid breakout before you go with it for more longs, especially at the highs.

So how do you trade a top? That circle at 4119 would have been a great entry short, but what if price kept rising? You really have to be careful and keep the stops tight. A little safer entry, instead of just standing in front of the "long" freight train, is the ABC pattern, which is very similar to the Lower high pattern that swing traders would use. (Go short at "C".)




Now, I am showing a 7-tick Range Bar chart. Imagine this kind of pattern on a fast 1 tick Renko chart!

And this is what I wanted to show: Instead of one good downtrend trade from the ABC pattern, we get at least two 20-tick trades:



Notice that our range condition mid-line is still there at 4114. We go short above the midline. However, we incorporate the swing trader's Lower High concept. We wait for a break of a previous support, like in both yellow circles. This gives us permission to call a local top and go short, and get a few more ticks than we might otherwise get. And do it safely.

In the next post, I will talk about scalping off of bottoms...

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 sstheo 
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Super Scalping

Part 5 of 5. (Final installment) "High Probability Momentum Scalping": Trading Bottoms

Tops and Bottoms are tricky because they often aren't the top or bottom!!! The top becomes a bull flag for a continued strong move up and the bottom that you thought looked solid was just a bear flag that just keeps on tanking, blowing through all stops and wiping out imprudent bulls.

In SuperScalping part 4 I talked about tops and how they are often rounded-top ranges with a last-gasp pop you can often sell into. But sometimes they are spikes up and down, and they look just like bottoms do most of the time.



This is from yesterday April 13, 2021. Notice the spike top around 4127. It was not rounded like most tops are.

Notice the spike bottom around 4101. This is a normal drop and pop bottom for sure.

In each case, but mostly for bottoms, we are trying to find the answer to the question "Where is the reversal?"

Last year in March the bottom kept falling out of the market until the US Federal Reserve promised salvation for every living being in the known universe. This was an extreme example.

But in a normal market, we want to determine a safe place to consider going long. Where is the bottom?

Here is my #1 rule. If you think it is the bottom, WAIT. There will probably be one final push down. Interesting. This sounds very similar to what I said yesterday about tops! "One final push..." Once you get that final fast moving stop run then you can try...

Bulls buy anything that moves, and the lower we go, the more they lick their lips with anticipation.

What gives the "bottom" some validity is if we are close to a prior Support level, like a previous Open, High, Low, or Close or a prior Point of Control or a Fibonacci level. There are lots of support levels to choose from. But even then, we want to see BUYERS step in before we try to "catch the falling knife." Like most traders, I have gotten a lot of deep cuts from these "falling knives." It really hurts.

Choice to make:

A) You can simply enter long at the support level you think will hold because you have really deep pockets and are a masochist - OR

B) You can wait for some confirmation of reversal.

I now prefer B. I have begun to WAIT for confirmation, and to see BUYERS stepping up to the plate:

1) I go down to the 1 tick Renko bar and watch and wait. I want to see a turn of the 20 EMA.

2) I want to see a break of two small prior Resistance levels on the 1 tick chart.

Here is the 1 tick chart showing the same bottom from yesterday:



See the fake out reversal? Remember to wait!!! The true bottom will come.

See the turn up in the 20 EMA. That is the first clue.

Now notice that the long entry is after we break the second Resistance level counting up from the bottom. To determine a resistance level, I simply look for two or more green bars.

That trade quickly gave about 16+ ticks of profit after an initial pullback, but ultimately went up the rest of the day...

And remember... ALWAYS use stops. If your "bottom" was not really the bottom, you must be protected. You can always get back in at a lower price.

Some people love to use MACD divergence to determine bottoms.

I also like to use the OBV to show that buyers are coming into the market. I will post more about the OBV later.

Well, that is it for my monologue about scalping. But I will be giving lots more examples and charts going forward.

Time for some trading.

sstheo

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 sstheo 
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Thou Shalt Know Thy Levels

Part 1.

Support and Resistance: What is it? Why does it work? What levels are most important?

It all starts with fear of loss...

The desire to be whole. "I was down, but I made it all back." "I finally got back to Break Even" I hear it all the time. The PAIN of being down on the trade or down on the day is hard. So when a trader has the opportunity to get out of a bad trade and be "whole" again, he/she will usually do it and go flat at Break Even. "Trapped Traders" misread the market and are trapped on the wrong side. When price returns to their entry, they are not going to take any chances. Even if the price continues on in their original chosen direction, they will be satisfied being flat.

"Half Way Back" (HWB) is the 50% retracement of a big down move or a big up move. Often the price stalls at the HWB and then immediately continues in the direction of the big move. Traders know this. Trapped traders know this. So if the move is "big" and traders don't think they will ever get all the way back to their (wrong) entry, they just might be satisfied with taking a loss of "just" 50% of what it might have been. By the way, it is simply fascinating that the algo coders have picked up on the HWB phenomenon. The number of times I have seen 50% retracements to the tick is incredible.

OHLC. With these two concepts in mind, let us look at the Open, High, Low, and Close and think about the probable reversals there:

At the Open, about half of the people are simply WRONG. So what if price pops up and then comes back near the open? Exactly! They will bail and then start looking for another trade. The fear that price might pop again and go even higher is just too much.

What happens if we revisit yesterday's Highs? Same thing... The highs for both the Regular Trading Hours (RTH) and the Globex or Extended Trading Hours (ETH), will get some traders to bail.

Same with the Lows for both the RTH and ETH sessions.

How about yesterday's Close? There were swing traders who placed their bets at the close the prior day. About half of them were simply WRONG. What happens if price gets back near yesterday's close? Exactly. The wrong-footed traders will get out asap.

Here I am showing just the RTH session here with a 5 min line chart to simplify the viewing of the horizontal levels:



Notice the following at each point.

1. Price reversed back down when it retested the highs of the day (new All Time Highs!)
2. When price tested today's Open, it bounced back up
3. When price retested Yesterdays RTH High (YRTH High), it fell again
4. When price fell hard to Yesterday RTH Low it bounced HARD.
5. The ETH Low stopped the pop. This was also close to the HWB level of the down-move.
6. The YRTH Low held and caused a reversal.
7. The YRTH Low held and caused a reversal.

In all cases, not only do wrong-footed traders bail, but opportunistic counter-trend traders will accelerate the reversals.

"But wait!" you say, "sometimes trades blast right through those levels and continue to the moon, or tank hard." It is so true! So you have to be on your toes. But thinking about the psychology and the pain-relieving actions of some of the market participants will take you far.

These same psychological ideas can help at almost ANY support or resistance level.

In addition to the HWB and OHLC levels, there are Fibonacci levels that MANY traders use successfully, especially the 61.8% fib. There are also major trendline levels, moving average levels, and Volume Profile (Value Area) levels. I will discuss these later.

So any time you have a prior turn in the market, MARK IT! Know that you will probably get a reaction at that level if price gets close to it again.

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 sstheo 
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Thou Shalt Know Thy Levels

Part 2.

TLs, MAs, POC, VAH, VAL

Yesterday, I talked about the OHLC for the RTH session and the H & L for the ETH/Globex session as being significant levels for potential reversals in price. I also mentioned the HWB retracement level for any big leg up or down, as well as the 61.8% Fib level.

Quick interruption in today's discussion of levels and a perfect review:

As I write this, the market is testing yesterday's High at 4,144.00 on the ES. And it just broke! The new ATH is 4,144.50. There are NO resistance levels above because price has never traded here before, so things could accelerate quickly to the upside and induce a short-covering panic - a squeeze of epic proportions. However, all the traders who were long at yesterday's ATH and held through the downtrend yesterday are deciding right now if they want to bail (sending prices down), or they if they really believe we can get to 4200 or higher. This is a classic potential "double top."

What will happen at this level today?



Today I want to simply mention that the other levels I think are significant and need to mark/watch are

I mention these four here because any discussion of "Levels" would be incomplete without them. However, I will address each of these individually in the near future, as each one deserves its own time in the spotlight.

Some people like to watch the "Floor Trader Pivots" and post R1, R2, R3 and S1, S2, S3, but I have found these other levels to be more valid. And charts can quickly have way too much information on them to be useful. There is a constant struggle between simplicity and information overload.

Looks like the ATH was just broken again and 4150 is just a breath away....

So what are my LEVELS for today?

OHLC

XXXX.xx Open (hasn't happened yet)
4144.00 High from Yesterday's RTH session
4113.00 Low from yesterday's RTH session
4122.75 Close from yesterday's RTH session
4146.25 High from the current ETH session
4115.00 Low from the current ETH session




Fib Levels


Identifying the two best anchor points for Fibonacci levels can be tricky, but the levels often get a strong reaction. Here are today's opening levels.

4133.50 38.2% fib of the lows to highs of the last big leg up
4129.50 50% HWB retracement
4126.00 61.80% fib




Trendlines.
A few hours later, here are the current two big trendlines for the day. If 4150 is broken, it might generate a big move down, but the TL at 4130 should hold it. Notice how well the bigger trendline held price for MANY days.



Moving Averages. The chart also shows the 20 and 50 EMA's on the 60 min chart, showing 4141 and 4133 as significant levels. Obviously these are MOVING averages, and I call them "Dynamic" Support and Resistance levels for a reason.

Value Area Highs & Lows and Point of Control

The last chart I wanted to show for levels is the prior day's "Value Area." For those who don't know, the Value Area is the range of prices that incorporates 70% of the prior day's volume. VALUE is the area where the buyers and sellers tend to agree on price, and is usually a big magnet. Prices can stay near the same value area for days or even weeks at a time.

The Value Area High (VAH) is the top of this range, and the Value Area Low (VAL) is the bottom of the range. The Point of Control (POC) is the price that had the most number of contracts traded. This is also called the High Volume Node (HVN).

All three of these levels, the VAH, VAL, and POC often provide good Support or Resistance.



So there you have it - my concise summary of which levels I keep track of each day.

I will discuss each more in the future.

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