Frustrating

What a frustrating day. After the gap didn't fill, I went long on DIA only to be quickly stopped out with a stab beneath the 50 EMA. Then price formed a nice bear flag at 12:00 (first set of blue dotted lines) and I attempted to short and was told that the stock wasn't easy to borrow by my broker. A stock that trades 31 million shares in the day and it isn't easy to borrow?!!

I assumed it was a glitch and watched as the bear flag met its target. Price then set up another bear flag and I attempted to short it. Same message. I couldn't short it. Again the flag met its target as I sat idly by.

I then switched to SPY hoping to trade the next bear flag setup (I was pushing it with three in a row--that's pretty rare). I set my stop way too close to the 50EMA and barely stopped out as the 50 was breached for a moment. DANG IT!!

I immediately shorted again when SPY formed a couple of dojis near the 50 (first blue arrow). Price took a dive, just as predicted, but I was too bothered by my other trades and I move my stop to break even so that I wouldn't lose any more money.

Of course the price bounced off the 200 MA, came back up, took out my stop, formed a doji and then headed hard down. I was too exasperated with my losses to take the best trade of the day that would have made all my losses back (and more).

I'll need to pick myself up and brush myself off and see if I can do better tomorrow. The Office is on tonight, and that show usually seems to boost my spirits. I hope your day went better than mine.

A one trade a year system

If anyone out there has a system that picks stocks like these the day before, I'd be interested in hearing a bit about it. This one would have made my decade.

Trading 30 minute candles in conjunction with 5 minute charts

I love trading narrow 30 minute candles for several reasons:

1. They provide huge risk to return ratios.
2. They don't require constant monitoring.
3. You can easily set up a "bracket trade" and let the market do its magic.
4. They provide a narrow 2 to 3 hour time frame for trading entries.
5. It can be much easier to spot a trend on a 30 minute chart.

I've learned that trading 30 minute candles indiscriminately, however, doesn't provide a trading edge. There are hundreds of stocks that paint narrow 30 minute candles every day. Very few of them go on to provide a nice profit.

But, by combining 30 minute candles with other time frames can provide an extremely probable and profitable setup that's hard to beat. Let's look at an example from today on MOS.
The narrow candle at 11:00 provides a great entry point. If you placed your stop right above the candle (red dotted line at $43) and sold short when the 11:30 candle broke down below the close of the 11am candle (orange dotted line at $42.40) you would have risked 60 cents per share ($43.00-$42.40). Holding on to your MOS trade until the end of the day (about $35.95) would have made you $6.45 per share. That's 10.75 times your risk ($42.40-$35.95)! Risking $1,000 on the trade would have made you $10,750. Nice.

Let's look at the 5 minute chart to see if there are any clues that this is a decent trade.
At the exact entry point in our 30 minute chart, the 5 minute chart shows two edges--a bollinger band break and a moving average crossover right at yesterday's closing price. To manage risk you could use the 5 minute chart to trail your stop along the 50 EMA. If you are more agressive, you could just leave your stop all day. I like to move my stop to break-even as soon as the stock has made 1 times my risk (in the case of MOS 60 cents).

Using multiple time frames (you don't have to get fancy) can really boost your confidence and help you see trades that may need some confirmation before you take the plunge. In the case of 30 minute narrow candle trading, the 5 minute chart confirms the 30 minute chart giving us a high probability trade with huge returns and little risk.

Two Market Rallies Disappear

It's kind of crazy to think that we are now at the same point we were in 1996. How awful for people who trusted others to manage their money.

Like others, I didn't have the clairvoyance (or the opportunity) to move my retirement money to the safety of cash. Most of us don't have many options when it comes to our retirement and even if we have a little bit of market knowledge, we are still extremely limited in our choices. I had 10 funds to choose from, and was discouraged from keeping my funds in cash (it was a rigorous process to sell the funds and place them into a cash account--and I was too lazy to the paperwork).

I decided last week to cash out my accounts after seeing how decimated they were over the past year. I haven't been saving for retirement very long. I started in 2003, so I didn't have much of a nest egg built up. But what I got back (after taxes and penalties) was half of what it was a year ago. The 10 percent penalty added to my frustration. I'm paying a penalty because I'm tired of market "professionals" losing all my money!

This might be extremely irresponsible of me, but I'm not planning on keeping a retirement any more. With the insanity that has happened in the government and the markets, I don't feel that I can really trust that the market will "always go up", or that my account is safe from a desperate government that has run out of ways to raise capital.

The spring sprung

Our "coiled spring" is now broken--to the downside. That's not good if you're a bull.

Today's action was difficult for me to trade. For the most part I avoided dumb impulsive trades. I didn't make money on any of the 5 trades I took today (the red arrow is one of the short trades that I made and stopped out). My chart on Tradestation didn't look as bad as the one above does. Today was much more choppy than I realized.

The blue dotted line at the bottom is the low of November 2008 (on a closing basis). You can see how the bears kept pushing us to the breaking point, but we didn't manage to bust through until the close. That makes tomorrow an interesting proposition. Will the bulls see this as reaching "capitulation" and try and take over, or will the bears see this as the bulls giving up and push the market down further?

I've included a bonus "narrow candle" chart for a trade that I didn't take today on EOG. If you would have sold short when the narrow 9:30 candle got broken (red arrow) with a stop above (orange dotted line) you would have made 2.7 times what you risked.

There weren't a lot of trades out there today after that awful gap down. Tomorrow should be interesting.

A coiling spring

The market's wedge has been narrowing for a long time now and seems poised to break out pretty hard. The premarket chatter points to the down side today and there doesn't seem to be anything positive to counteract all the negativity. The November lows are well within reach, so I'm looking for at least a retest of those lows.

I don't know if it will all come in one day, but even though I'm supposed to be waiting to let my account settle, I just might have to trade if the market opens itself up and gives us a strong trend day. Stay nimble out there. Be patient and wait for the opportunities to present themselves.

Still coming down

The snow is still piling up. I made a few pretend trades this morning. I don't feel the pain of losing as bad when I'm paper trading, but I had to look to make sure that the account was not real several times just to make sure.

I was up $1,000 for a bit and then ended up down $700 by the time I was finished. I'm not sure what my problem is, but I'm glad the money wasn't real today. Maybe this three-day weekend will give me an opportunity to re-evaluate everything and make some changes.

Snowbound

The market looks a little tepid this morning. That works out well for me, because I'm not trading today. We're getting a snowstorm this morning and the above photo is a look out my window. I like being able to stay home and enjoy the snowfall with my kids.

It's a good life so far. We'll see how long I can keep it going.


I'm just finishing up a book called High Probability Trading by Marcel Link. He addresses several issues I've been having lately (overtrading, "show off" trading, lack of self control, fear) in the book.

He highlights setting realistic goals, using multiple time frames, trading with trends, using oscillators. He also includes some very practical advice about placing stops and exits, trading systems (he includes TradeStation codes for simple systems), managing money, and backtesting.

Link isn't afraid to share some of his worst failures as a trader and I really appreciate that. Too many writers aren't very honest about how difficult trading can be. I enjoyed the book and recommend it to anyone wanting practical and timeless advice about trading for a living.

Can't seem to make a buck

I'm having trouble finding a trade that works lately. I'm planning on taking a few days off to regroup and figure out what my problem is. I'll probably try again next Wednesday.

The slide continues

I had myself all geared up for a good week this week after contemplating my mistakes over the weekend. It was all for naught as I traded away another 3R before calling it quits for the day. Of course, a perfect setup appeared 15 minutes after I quit.

I've gotten good advice from readers, and I think I'm going to back off a bit until things start "clicking" again. I plan to refocus on the "dummy trades" that I was making back in August and September. I was very successful with those trades, but I found other styles of trading that I thought would suit my lifestyle better.

The last 3 months have left me without a profit, so I'm thinking that I can't really handle day trading just the DIA and I need to branch out to other stocks using longer time frames.

Dumb mistakes

The week ended on a sour note for me as I lost another 3R on Friday. As I thought over things this weekend I think I've come up with some reasons for my poor performance the last two days of the week. My mistakes stemmed from three different sources:

1) Overconfidence
2) Impatience
3) Emotions

I guess number three could cover all of them, but I wanted to break things out a bit so I could focus more clearly on what was going on.

It seems so silly to me that emotions play such a large role in trading success or failure. I consider myself a very logical person who is rarely overtaken by emotions (some of the scenes in Finding Nemo and Dances With Wolves are exceptions for me--yeah I cried a bit). But during the trading day, my emotions often take over and I make boneheaded decisions.

I think part of the problem is that I'm still in that "trading is a hobby" mode. It hasn't quite hit me yet that my SOLE INCOME is now depending on whether or not I can pull money out of the market consistently. That "hobby" mentality sometimes causes me to trade with reckless abandon and only after the day is over do I look back and think, "Hmmm, that sucked."

Friday was an excellent example of my lack of patience. There was no gap at the open, but we moved higher on several strong pushes by the buyers. My first thought should have been, "This looks like it might be a "trend day" and watch for confirmations. Instead, because playing pullbacks to the 20MA has worked so well lately, I focused on that and made a trade that eventually went against me.

That was OK, but then I let my biases and emotions get in the way and I made the SAME TRADE again, right after I had stopped out. My thinking was that it didn't work the first time so it HAS to work the second. I stopped out again--down $1,000. I should have just quit.

Finally, as I sat back and watched things develop, I was able to determine that we were in a trend day and it was time to take trades accordingly. I did, and I made back my $1,000. But immediately, the market started going against me and I panicked. I moved my stop up above where I had logically placed it, and wouldn't you know, price dropped just below my stop, took me out, and then moved higher--down $1,700 and done for the day.

I've got to learn (and quickly) to avoid rushing in and trying to put on positions. There are so many opportunities each day, and I need to only take those high probability trades that I can feel good about taking even if they go against me.

We'll see how week two goes. If it ends up with results similar to this week, this could be a very short experiment.

Day Four-- Pigs get slaughtered

Whenever I get a little cocky, the market teaches me an unpleasant lesson. Today it whipped my buttocks thoroughly. I'm OK with a few trades that I made, but I made some boneheaded decisions today based on my bias that the market would go down hard today--another lesson to avoid the news and sentiment and just follow the chart.

Learn from my mistakes:

We started out the day with a gap which I attempted to fade and quickly stopped out with those two down bars. I'm OK with that trade.

Trade two was a divergence trade back to the 20EMA after a new low for the day. That one worked out (I love divergence trades). Back to even.

I was flabbergasted to watch price continue through the 20EMA (green line) and then the 50EMA (blue line). "There's no way it will break over the 200 (red line)!" I thought to myself. I shorted on the doji (trade 3) at about 11:05am. I should have targeted yesterday's close which would have been more logical than the 50EMA. It hit yesterday's close and went on to stop me out on the big up bar around noon.

Then I got all stupid and started taking edgeless trades. I took two (not shown) "it can't go any higher!" trades which stopped out as it DID go higher. Just dumb.

My next trade (#4) was a good one except I was pushing for just a few more bucks (I'm a pig). I shorted after the new high at about 12:15pm on a slight momentum divergence and targeted the 20EMA. Price mocked me as it neared the 20 and headed back up. Corey Rosenbloom told me that I should set my targets just a tad less aggressively since I'm missing them by pennies at times. I should have listened.

I lost 3R for the day which sucks because I decided today to double my position size to .5% of my portfolio value. It always seems to work that way.

Day Three -- Made up for day two

I was able to make up for yesterday's wash with a decent gain today. There weren't a lot of opportunities until about 12:45 when we got a bear flag out of DIA. The first flag met its target and then created a second bear flag which went on to meet its target (and then some).

I got out before price dropped below the 200 period moving average (red line) and I missed the divergence trade back to the 20 period moving average (green line) after the day's lows. I came out of the day with a 2.5R gain on a day that was kind of squirrely. I'll take it.

Day Two--Broke Even

The market provided several decent trades today. Unfortunately, I had a hard time taking the trades and sticking to them once I took them. I ended the day even.

The first trade I missed was a small gap that filled in 15 minutes. The second was that doji right at the 200ma. I missed that one.

I took the third trade which I saw as a big bear flag (it didn't go that way). I had a small target at the lows of the day and missed it by a few pennies. @#$$#!! (pretend cursing).

I took the first bollinger band breakout at about 1:30 and held on but then got all wimpy at exactly the wrong time. I should have seen that momentum high for the day (gray arrow) and expected price to go higher. At the same time the 200 moving average was helping out the 20 moving average provided and excellent supporting "intersection" of moving averages. But I had made up my losses for the day and was satisfied with that. Stupid.

Price went on to make another high (with a momentum divergence), but I was out, and I didn't feel like playing anymore. I went downstairs and worked on my wife's treadmill some more. It's still broken.

Day One--Trading for a living

I would have posted last night, but I hurt my finger trying to fix my wife's treadmill and it was difficult to type. I'm doing better now, and I can type once again. Thanks for all your kind cards and flowers.

Yesterday was hard for me to trade. Fortunately I had a trade go my way right off the bat for a 1R gain meeting my target for the day. Unfortunately, it was hard for me to take other trades I saw because I didn't want to lose my "salary". Here's a pretty picture of my day in trading on DIA:

I was on the fence about fading the gap after the open, but the market seemed to be recovering it's losses from the open so I bought and held until price reached the 20 period moving average. Right after I sold there was a decent opportunity to go short, but I was too happy with my gains and I passed it up.

The only other opportunity I saw was the "bear flag" near 2:00pm. In my opinion this was the best trade of the day. A short there would have quickly made its target.

So far so good.