Aug 1 2008 Trading, Choppy with lots of news events

Even though the day was choppy, there were some great scalping opportunities for Day Traders.
There was a considerable divergence in strength seen in the Russell 200o compared to the SP500 the last 2 days.
For the week, the SP500 finished up 0.56% & the Russell 2000 finished up 1%.
2yr bond future ZF vs. Dow Jones future YM.
I traded the first 2 hours, catching a good long off the bottom and a good short on ZB playing an inverse pair strategy between bonds and stocks.
I use the simulator account to place trades to get a better feel for which contracts may be a better long or short.

Checkout TokyoTrader for a recap on July's Virtual Office Performance.

ES vs ER2

Check out that divergence-


CRAP, I guess I quit trading to early again. I did that all this week.

Interesting to note the wider trading range on ES compared to ER2.




Today, Governor Schwarznegger is lowering pay to all state employees to minimum wage and some people that are temporary employees are getting fired. This is all part of the governors' plan to tighten the state budget. That really sucks.

July 25 Trades

Traded for 40min mid-day. Traded 5 contracts.

Long ZN, Short ER2. (I exited ER2 too soon; however, I re-entered short via YM, also, I expected my ZN trade to work out sooner but gave it time and exited at my sell signal)

May 5. YHOO and FRE trade of the day

There were easy setups in FRE and YHOO, but my goal today was to trade my futures setups.

I said I was going to watch this today. I probably should have shorted it. Oh'well.


ZF long scalp-

The Volatility in Crude Oil is too much for me to handle right now-

Should have used a wider stop and waited for financials to weaken more. Overall I disliked this stock and quit trading it because it seemed illiquid and choppy.

I got a little frustrated trading NQ from all my stops getting hit.

I got a buy signal on GC this morning at 864. Should have taken it.

NYSE A/D was in my favor for this short trade. Which was my easiest trade of the day.

Good trade on ER2. I added to this winner when it went about 7 ticks in my favor.

I need to start working on keeping half of my shares at breakeven incase I get a runner.

My avg.was about $200/day last month. So my goal this month is too achieve this number and focus more on trading index futures because I make the bulk of my profits trading ER2 and ZF. I'm quiting early today because the market seems very thin right now, which is probably due to some overseas markets that were closed.


Wheat bubble-

Rice Hype-

V stands for Visa, not Vendetta

The stock of the day was V, or as I like to call,
THE V TRAIN!,,,,,,,,,, ALL ABOARD!
V and MA were hot stocks to trade today. I sold V way too soon. Ouch!


Meanwhile all the Ag stocks continued there sell off. I should have held that PUT option on POT from a couple weeks back.

Saw some support in Crude Oil so I got a LONG scalp on XOM.

Signals on YM worked good today-

I sold FSLR WAY TOO SOON, should have scaled out of my long better.

This stock gapped down big in the morning and was on my scanner, however volume lacked so I only stayed around for a small scalp.

Good signals on ER2, should have entered with 2 contracts and scaled out based on my signals.

Got impatient with this trade and Oil was beginning to bounce, so I exited early.

Saw support in Crude Oil so I shorted Dug, this was a good trade.

I wasn't brave enough to trade Crude Oil even though my signals looked good.

My signals on AAPL always seem to work, I just need to be more patient.


My Trades

P/L

Apr 11, Bearish Day with Gap open lower

Today I sucked again. I had a hard time holding onto my shorts, (I covered too soon on my NQ shorts). Anyway, I need to work on my rules and signals more in conjunction with market internals. Also, I need to work on risk management on proper share size/contract size for a given setup. Overall this was a tough week and I feel I should have made more but I screwed up by trading against some of mysignals.


Bearish NYSE TICK readings almost all day

A clearly bearish NYSE A/D line, as soon as this turned lower at 12, short trades had smooth sailing into the close.
NQ and Tech lead the way down.
I got lucky buying the last signal of the day.
I guess I should have held that AAPL short from yesterday, DAM.

Hedged positions

Here's a trade I put on a week ago. It's been steadily increasing in Profit. I realize it's not a perfect hedged position. Short Russell 2000 with a long SP 500 hedge, and long 2yr notes with a short 30yr bond hedge. (I could have used 2 contracts on ZF to make the ZB hedge better balanced and put the position in the green by another 1k).

HIGH PROBABILITY TRADE SETUPS

In this post I will be going over my typical trading day from the night before, to premarket, and to market close. I will discuss how I use the bond futures, the VIX, NYSE advance/decline line, NYSE tick, and block trades as a way to trade in conjuction with my volume based market profiling.

Volume based market profiliing-
First and foremost I look for trade signals in relation to the market profile. When price is away from the Point of control POC(highest volume area of the day) I look to take trades that would move back to the POC(like a mean reversion approach). To become familiar with market profile I suggest checking out Trading Naked's large number of educational links found at the bottom of his main page. Here are a couple charts which show what a market profiler looks for on a range bound day and a breakout day.(courtesy IOAMT.com)





My Trading methodology-
I look for short trade signals more so when price is above VAH(Value Area High), and I look to go long when the long signal is below VAL(Value Area Low). When trade entries are made with regard to volume profile on a range day, profit targets should be set to the POC, VWAP, or an exit based on a tick extreme. Entry points are based around block trades seen in IWM and SPY, with the prefered entry made at a tick extreme. When trade entries are made with regard to volume profile on a breakout day then I look to exit when there is heavy volume at a tick extreme.

The Night before the trading day-
What happened yesterday? Did we have a breakout trend day or a range bound day? If the previous day was a bullish breakout day, then I would have a bias to take trades based off my trading method that would be buying VAL and vice versa if the previous day was a bearish trend day. If the previous day was a range bound day, then I would be looking to short VAH and buying VAL normally; however I will also be looking for breakout trend days driven by catalysts such as economic news and in some cases breakouts based on technical analysis like having a 3-7 day narrow trading range(NR3-7). Below is an example of how I charted my volume market profile forecast for the next day.
(NOTE: All of my charts are set to Pacific Time, because that is the time zone I live in.)



Also in my research the night before I like to look at the daily, weekly, and monthly volume profile for the markets I follow by going to Chart-ex.com. By checking out the volume profile on a weekly and monthly chart, you can see volume gaps; which are areas that I typically expect to be filled. Here is an example of the volume profile charts from chart-ex on ER2 taken February 23, 2007. In the chart you can see price is trading at VAH on the weekly and monthly time frame, with a volume gap to the downside.



The start of the trading day-
Premarket: What is the news for the day? What could be the catalyst for a breakout trend day? In order to be prepared for pending news events I checkout the forex factory calendar, which gives pending news events for not only the US, but for all of the world; with regards to the currencies, bonds, and stock markets of the world. Rueters market calendar and Econoday,
are good as well for tracking US specific pending news.

Market open: Is there a gap up/down at market open, and if so, why? Most of the time the gaps in the morning are due to economic news being released before the morning bell around 8:30am EST. Most traders know that morning gaps are good trading opportunities because they have a high probability of being filled or at least partially filled within the first hour of trading. Here is an example from March 29, 2007 of a morning gap due to the GDP # being released before premarket, with the result of a 9pt gap on ES being filled with the first 2 hours of trading.



I will now discuss how I use the bond futures, the VIX, NYSE advance/decline line, NYSE TICK, and block trades as a way to trade in conjuction with my volume based market profiling.

Bond Futures-
Starting during premarket of the stock market I track ZN, which is the most heavily traded bond futures contract(I also track ZF and ZB contracts as well). When watching ZN I look to see if there is heavy volume being traded and if there are any correlations or inverse correlations between ZN and ES. Some days you can see an inverse relationship between ZN and ES and other days you will see no relationship at all. The relationship between ZN and ES is a more advanced trading method that should be used in conjunction with other intraday market breadth indicators as a way to help confirm your trading signals. Here are some examples of the inverse relationship seen between the bond futures and ES, ER2, and SPY.







Sometimes you can see a positive correlation between ZN and the VIX, seen more so during the first 2 hours of trading. Here's an example.



The VIX-
Sometimes you can see divergences between ES and the VIX. Here are some chart examples.






NYSE Advance/Decline line-
By watching the NYSE A/D chart you can stay on the right side of the trend and see where possible breakouts in volatility may be placed. Here are some chart examples compared with ES and SPY.






NYSE TICK-
The NYSE TICK is one of the best intraday market breadth indicators for gauging short term price movements as noted by the NYSE TICK expert Dr. Brett Steenbarger. Some of Dr. Steenbargers articles on trading with the NYSE TICK can be found at Traderfeed. Here are some of my chart examples using NYSE TICK.



ER2 example.



YM example.



This tick chart of SPY highlights block trades as red dots compared to NYSE TICK.



Here is an example of NYSE TICK compared to NYSE A/D.




Block Trades-
I filter for block trades(50-200,00 shares) on the ETF's of the underlying stock indices as a way to track large traders. I particularly look for these block trades around NYSE TICK extremes as signals for short term scalping opportunities and places to exit if I'm already in a trade. I do this because I don't have software like marketdelta, and I like looking for large volume trades in the ETF's because these block trades are seen as better signals when compared to ES and ER2 block trades. Here is a great article from Traderfeed on Tracking Large Traders. Here are some chart examples showing block trades highlighted as red and green dots on the ETF's I follow.





Here is a chart of ER2, NYSE TICK, and IWM showing block trades near NYSE TICK extremes.



Trade examples-
Here are a couple of my trading days taken from my journal that show my trade executions posted above the chart.

Here is an example of one of my trading days where I used a tick chart of SPY showing block trades for guidance in trading ER2 and YM. I looked for short signals because we were trading near VAH and there was no sign of a catalyst to turn the day into a breakout trend day.




On this day I saw a double top on NASDAQ A/D and NYSE A/D, with the NASDAQ A/D line being the more bearish of the 2 charts. Also we were trading in the VAH, so based on my volume profile trading methodology I used this as a way to confirm my short trade signal.