Quiet Trader's Virtual Account

July Update

2009-07-30T22:16:00.000-07:00

I am posting this reply to a comment from Ross who was interested in how my trading is going.

My apologies for the lack of updates. I have not had time to do the blog anymore, unfortunately. When I was posting here every day, I spent 1-2 hours each day just writing the blog posts, doing the charts, recounting my trades, etc. Since I work a full-time job in a computer-related field, am married with two kids, and live on a horse farm, as well as following the market and trading, I just do not have the time to keep up this blog as well.

The trading itself is going fantastically well. I still trade most days, and my profitability and consistency is better than ever this past month. I am looking forward to trading with a real account -- if I do not get an investor before, I will have access to some 401K funds in May of 2010 for a loan which will allow me to start trading an ES contract or two with money in reserve.

I am trading a bit differently these days. My position holding time has gone down and my number of trades has gone up. I find that I can very often predict pretty accurately where the price is likely to go over the next 1-3 minutes, but much less accurately over the next 1-3 hours. So I set up and take 1/2, 1, 2 points on the ES, trading in lots of 10 (the maximum preset size allowed by the TOS simulator, I'd trade larger size if I could) all day long.

I've uploaded somewhat recent p/l info in case you are interested -- nicely profitable every month since I began, and July exceptionally so (unless I really bung things up tomorrow!) My account value is now $477,000 (approximagely), so not a bad job since opening at $100,000 last October.

Hiatus

2009-04-06T15:25:00.000-07:00

I am putting this blog on a temporary hiatus while I focus on some work-related projects the next several weeks. I will continue to use the blog to make personal notes about my trading but will save them in draft mode as I do not have time to prepare the elaborate charts and notes that I provide for public consumption.

I will update the trading P&L on a regular basis, and will return to blogging for the public as soon as my time permits.

Friday 4/3/2009

2009-04-03T19:08:00.000-07:00

Rally fizzling. . .

Another good half-day of trading. This time I hung up my sneakers when my trading started to falter after noon. A new all-time high today. Ended the day up $13,325before commissions ($6,053 after) with $311,952 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

This bull is going on WAY too long IMHO!

Intraday Chart of /ESH9

A) Market opens down a few points.

B) A rapid drop here, giving a sell signal. Glad I was not trading here cuz this signal was WRONG!

C) Strong buying breaks the downtrend line, signalling time to go long (along with $TICK).

D) Uptrend broken, sell any position here.

E) A new high, time to go long again

F) Uptrend broken, sell any long position here.

G) Downtrend broken, cover any short here (and go long if you buy after 3:00 PM, which I don't.

What worked:

Technical chart reading in conjunction with $TICK led to profitable scalp trading with the trends today. Also when I started trading poorly in the late afternoon I closed my screens (unlike yesterday) and preserved 80% of gains.

What didn't:

Believe it or not, I made a trade after 3:00 and (of course!) pissed away some of my gains on it. Fortunately I didn't repeat the mistake. It is much more difficult to be disciplined when I am making 60+ round trips a day -- obviously each scalp-style trade is not going to be as well thought out as when I make 3-4 position trades in a day.

What I will change:

1) No more new positions after 3:00. This time I mean it!!! None. Zero. Zilch. Nada!

My Goals

2009-04-02T18:10:00.000-07:00

Right now I am trading a virtual account as if it were real money, so I can improve my trading abilities and my market "edge". So far this is going very well -- I am up more than 50% on the year and more than 200% since opening the account in October 2008.

I would like to trade a large account for a share of the profits. If that opportunity does not happen, I will trade money borrowed from my 401K once I have paid back an existing 401K loan (in several years).

Thursday 4/2/2009

2009-04-02T17:37:00.000-07:00

Pamplona, Redux!

Well, I traded well MOST of the day. Sigh. A new all-time high today by the skin of my teeth. Ended the day up $6,247 before commissions ($152 after) with $305,898 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

Buyers STILL keep stepping up. . .

Intraday Chart of /ESH9

A) Market gaps up big again.

B) A new high, a buy signal (but I am away from my computer and unable to trade here).

C) Another new high, wait for a pullback and start buying.

D) Here is the pullback.

E) A spike up towards the high fails. $TICK deteriorating. Time to take profits.

F) An attempt at the high fails and the market turns down. Make sure to sell here if you are long.

G) Market almost closes at the lows, then some crazy quants go on a buying spree the last couple minutes to push it up 5 points.

What worked:

Strong $TICK and buy signals means some perfect long trades in the morning. I built my account up to $313,000 by lunchtime.

What didn't:

1) I tried to go long on a "pullback" despite an early peak, an overbought tape this past couple days, and deteriorating technicals / $TICK. Took my losses with still +$3000 in the account.

2) Pissed away the rest of my profits with some poor, large scalp trades after 3:00 PM. My record after 3:00 is poor.

What I will change:

1) No more new positions after 3:00. I keep getting burned.

2) Don't allow giving back more than 50% of profits. If I get to that point, close my screens for the day.

3) NO NEW POSITIONS AFTER 3:00!!!!! Oh yeah I said that already. . .

Wednesday 4/1/2009

2009-04-01T20:00:00.001-07:00

Bulls respond. . .

Hole filled. A new all-time high today. Ended the day up $9,075 before commissions ($3,987 after) with $305,746 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

Buyers keep stepping up. . .

Intraday Chart of /ESH9

A) Market gaps up big.

B) I buy at support at 780. Unfortunately I get shaken out for a 1/4 point gain, then the market bounces up 20 points!

C) Sellers fail to push below support, buy signal here.

D) Spike up high volume, high tick, buy signal here.

E) Consolidation "wavelets" at resistance, the inability to reject price back down strongly indicates that resistance is very likely to fail here along with repeated tries. Buy on troughs here.

F) 802.25 print indicates failure of resistance, buy on a pullback.

G) Market prices below former resistance (now support) quickly rejected, market spikes back up to support. Buy signal here.

H) Contra hour 3:00 PM -- watch out, no new highs in the past 45 minutes, take the money and run. . .

I) Market can't blow through support, buy signal for those who like to trade after 3:00 PM (I don't).

J) Market closes near the high -- lots of buyers out there today!!!

What worked:

Perfect buy signals today gave me confidence to trade around a core long.

What didn't:

I got shaken out too quickly with my long at support. If I had held that it would have been extremely profitable!

March 2009 Report

2009-04-01T19:41:00.000-07:00

Closed out March at 301,759, up $36,157.50 (+13.61%) on the month and $101,618 (+50.77%) year to date for 2009.

Here is a chart of results in my virtual account:

Month	Closing $	% change
October 2008	$131,034	+31.03%
November 2008	$173,646	+32.52%
December 2008	$200,141	+15.26%
January 2009	$240,250	+20.04%
February 2009	$265,601	+10.55%
March 2009	$301,759	+13.61%

Tuesday 3/31/2009

2009-04-01T19:28:00.000-07:00

Bulls respond. . .

I'm most of the way out of the hole I dug last Wednesday. Ended the day up $9,075 before commissions with $301,759 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

Buyers keep stepping up. . .

Intraday Chart of /ESH9

A) Market gaps up 5ish. I don't go for a gapfill as that play has been performing poorly this past couple weeks.

B) Spike up to new highs on killer $TICK, a perfect buy signal

C) Consolidation "wavelets" scream buy here. . .

D) A ramp up to another new high says buy. . .

E) More consolidation "wavelets" right at resistance tell us resistance is very likely to fail -- a great signal to buy in the troughs

F) Market is now past resistance, wait for a pullback and buy

G) Former resistance is now support

H) Market can't rally meaningfully from 2:45 to 2:55 indicating a big warning flag going into contra hour.

I) Heavy institutional selling, rally collapses, sell, sell, sell! Market closes near the day's lows.

What worked:

The buy signals ($TICK over 1000, spiking to new highs, consolidation pattern) worked perfectly to signal developing a core long position that I traded around for a nice profit. Another consolidation pattern at important resistance at 800 gave the tell that resistance would fail, providing another opportunity to make money.

What didn't:

Got "Cute" putting on trades in the bungie bouncing the last 10 minutes and gave back $600 in a few seconds. Better off just staying out of the market when it is bouncing up and down, or else put on tiny positions. . .

Monday 3/30/09

2009-04-01T19:11:00.000-07:00

Bear Charge!

A nice day of trading for me. Ended the day up $5,312 before commissions with $295,421 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

Turning down now?

Intraday Chart of /ESH9

A) Big gap down

B) Consolidation - a perfect indication to go short.

C) 6 point reversal gives a signal to sell (short) here.

D) Market fails to rally above 786.5 over an extended period of time, a good opportunity to short here.

E) 3PM Contra-hour - the market reverses here.

F) Market closes up 10 points off the lows.

What worked:

Position trade using gap down and further weakness to initiate a short position. Signals like a consolidation pattern provided a further indication and opportunity for shorting.

What didn't:

Gave some money back during the contra hour -- probably best to avoid any new trend positions after 3 PM.

Friday 3/27/2009

2009-03-29T18:50:00.000-07:00

Indecisive Market

Back on Track. Ended the day up $4,537 before commissions with $292,789 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

Intraday Chart of /ESH9

A) Market opens down 15ish. I do not try a gapfill here because the market is very overbought.

B) Market tries to break through resistance at 720 but fails repeatedly.

C) Bounces off newfound support at 710ish.

D) Spiked down off resistance.

E) Bounces off support again!

F) Closes 1/2 way between support and resistance.

What worked:

Decent scalp trading using $TICK indicator and buying or selling volume / momentum.

What didn't:

Should have paid better attention to potential multiday support / resistance at 710 / 720.

Thursday 3/26/2009

2009-03-29T18:42:00.000-07:00

Indecisive Market

Back on Track. Ended the day up $4,225 before commissions with $292,648 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

Intraday Chart of /ESH9

A) Market opens flattish.

B) A double bottom at 810ish. Looks like some temporary support here.

C) A spike up on high volume and $TICK gives a buy signal here. Looks like a breakout from the multi-day range.

D) Market closes near its high.

What worked:

Good scalp trading in a very choppy environment, buying the breakout at C) above.

What didn't:

Wish I had bought the double-bottom today. I should be looking for multi-day support.

Wednesday 3/25/2009

2009-03-25T16:06:00.000-07:00

Indecisive Market

My worst day in 2 months! Ugh. Definitely time to make some changes in how I have been trading, as some sloppiness in my trade management smacked me hard today! Ended the day down $10,450 before commissions with $291,216 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

On the 3 month chart it looks like the bull run of the last 2 weeks is either taking a pause, or preparing to roll over.

Intraday Chart of /ESH9

A) Market opens flattish.

B) I scalp on the way up to 820 here where I expect a bounce back down.

C) The 823.5 print convinces me to go long for a position trade. Bad idea! Fewer 30 day highs than earlier in the week, this bull is running out of gas. I bought only on price action, without secondary confirmation.

D) An 816 print gives me a chance to bail with a reasonable loss, but I foolishly stay long to get stopped out at the 810 area.

E) Buying pressure into the close, nice chance to scalp long here.

F) Market closes up well off the highs but well below the lows. Where will we go next week? My guess is down. . .

What worked:

Hmmn. I'm thinking here. I'm thinking hard. . .

Well, I scalped well enough in the morning. And I scalped well in the afternoon after getting blown away with my position trade.

What didn't:

Many things.

1) Inappropriate sell stops. I should have a maximum stop loss of $5,000 in place at all times. Losing $13,000 in one day is not acceptable at this point! And I tweaked my stop loss slightly down -- always a no no!

2) I did not bail when I knew this trade was in trouble, when ES was in the 13 area. I should have dumped all my SSO when ES ran back up to 16 following my "buy dips and sell rips" philosophy. I could have gotten out cheap then.

3) Too much leverage. I'm dropping use of SSO when my position is in the red. My maximum position size is now 5 contracts ES at any time when my daily position is in the red. I did not need to be in 15 ES + 20,000 SSO!

4) Poor trade selection. I got fooled by the false breakout at 823.5 The market was tired after a long bull run. Internals such as new 4 week highs indicated this rally was getting long in the tooth. I read this and bought in anyway. Dumb.

Looking forward:

Time to clean up some poor trading practices as noted above.

I am going to keep scalping which is working well for me and if that continues well increase size to 10 contracts. I am also going to make smaller position trades for now until my position trades are well into the green, at which point I can add to them (if my stop profit lock is in place).

Tuesday 3/24/2009

2009-03-24T19:58:00.001-07:00

Profit-taking. . .

Not much trading today, I was busy and only time for a few high % scalps. Ended the day up $2,550 before commissions at a new all-time high of $304,471 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

On the 3 month chart we can see how today we ranged from support at 800 to resistance at 820. Will we move back decisively into the December - mid Feburary range or fall down again into the late February - early March area next? The answer is unclear, although I do expect the 666 low to get taken out sometime later this year.

Intraday Chart of /ESH9

A) Market gaps down substantially, I am in a meeting and unable to put on a gapfill trade.

B) New highs on very positive tick, nice opportunity to go long here for a scalp-style trade of a 1/4, 1/2 , 1 or 2 points.

C) Expected resistance at 720 very close to yesterday's close and high, great risk/reward for a short here.

D) Down 5 points off resistance, good place to cover a short.

E) At 819 a good place to put a small "trapline" short just shy of resistance, it would have gotten triggered here for some $.

F) New afternoon lows in a downtrend, good place to start scalping shorts for a 1/4 to 1-2 points each.

G) Bottoms near a very solid level of historical support, a good place to cover any short positions you might be holding. Bulls will want to buy here for an overnight hold. Will tomorrow be a nice gap up or will the market gap down below support (or will it be flat instead?!)

What worked:

Support and resistance levels worked well today as usual. Strong $TICK and ES moves proved profitable scalp trade entries.\

What didn't:

Having another afternoon meeting at a key momentum trade opportunity meant a small day profit-wise.

Monday 3/23/09

2009-03-24T16:31:00.000-07:00

Pamplona! . . .

A good day of trading today, although shortened by a few meetings. I was in a meeting during the run above 800, wish I had been able to trade it. Ended the day up $7,550 before commissions at a new all-time high of $303,265 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

On the 3 month chart we can see how the bull kept testing strong resistance at 800 and finally burst through in the afternoon to run up to 820 by the close.

Intraday Chart of /ESH9

A) Market gaps up huge, I do a quick short and cover here.

B) A new high on a big gap up day. This screams trend day up, I start scalping with a long bias.

C) Obvious consolidation pattern leading to another new high here. I go long expecting the market to at least challenge 800.

D) First bounce off 800, I position and take a few points here short. I repeat again a bit after 1:00 PM.

E) I expect 800 might not hold, but I foolishly try the short again, this time I get stopped out. I try to reverse long, but get called into a meeting at work, so I am not able to put on a long position as I do not hold trend positions when I can't observe the market without an in-money stop.

F) Market closes very near the high of 821. Perhaps this is the new short-term resistance with 800 as newfound support?

What worked:

Support and resistance levels worked well. The market gave clear tells of a trend day up which I responded to.

What didn't:

I was playing too clever by going for a third bounce off the ceiling at 800. I knew 800 was likely to be breached judging by the extremely anemic bounces down off resistance. I should have waited for 800 to fall and gone long in the 803 area.

Friday 3/20/2009

2009-03-20T21:10:00.000-07:00

Markets roll over. . .

A good day of trading today, although shortened. Ended the day up $4,062 before commissions at a new all-time high of $298,315 in the virtual account.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

On the 3 month chart we can see how resistance at 800 smacked down the bull twice (double-top anyone?) Now we are heading back down. . .

Intraday Chart of /ESH9

A) Market opens up close to 10 points above support. Good place for a short. It quickly runs down to support at 780ish, I go long here.

B) Support has been weak, I sell out a piece at a time around 784ish because I expect the rally to fail.

C) Support has not held, now a new low in the early afternoon. I was playing basketball, I hope you were able to go short here for a trend down trade.

D) Market can't move below 761.5, a good opportunity to go long for a trade.

E) Market closes down near the lows. Looks like the market has rolled over and is heading back down next week. . .

What worked:

Support and resistance levels worked well. Support at 780 looked sick and I expected it to fail, which it did.

What didn't:

No complaints today.

Virtual Account Value Chart 3/19/2009

2009-03-19T19:58:00.000-07:00

Thursday 3/19/2009

2009-03-19T17:06:00.000-07:00

Resistance smacks down the bull!

I traded well this morning as the market opened down and gradually rose towards the FOMC announcement after 2. Ended the day up $8,425 before commissions at a new all-time high of $295,258.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

On the 3 month chart we can see the very strong resistance at 800 (was multi-month support). Futures spiked down off resistance YET AGAIN today as they did yesterday, smacked down hard again.

Intraday Chart of /ESH9

A) market opens up 10ish smack in the middle of resistance! A short is de riguer here, and I oblige.

B) Now the market has run down into month+ support at 780. I go long here.

C) Market can't rally past 785 so I go short here.

D) I buy again at resistance. Resistance is looking weak so I close this trade out after a couple points.

E) Market looks very weak, closes out at support.

What worked:

Support and Resistance worked very well today as reversal points for trades.

What didn't:

I should have held my resistance trade a lot longer for more profits especially since resistance at 800 should be very strong. I need to work on using stops and holding my S&R plays longer.

Wednesday 3/18/2009

2009-03-18T20:49:00.000-07:00

FOMC Ignites the Bulls

I traded well this morning as the market opened down and gradually rose towards the FOMC announcement after 2. Ended the day up $5,087 at a new all-time high of $290,733, easily making up for the past 2 days of small drawdowns.

You can download my updated P&L excel spreadsheet here.

3 Month Chart of /ESM9

On the 3 month chart we can see the very strong resistance at 800 (was multi-month support). Futures spiked down off resistance today, smacked down hard. I will short at 799 tomorrow with a stop at 803ish if the price gets up there.

Intraday Chart of /ESH9

A) Market opens flattish.

B) A new high -- is this a sign of a trend?

C) FOMC meeting announcement. Stock price spikes like a maniac!

D) A pullback then the $TICK launches again, I go long.

E) Another pullback, great opportunity to go long again.

F) Smack! I was in a meeting, as I got back to my desk I scrambled to put on a short but missed the safe window in the 799ish area. Darn! Market swatted down hard here, I figured it would retrace at least 10 points, and it did!

G) Market bounced back off resistance at 780. I expect the next couple days will be a battle between 800 and 780, and I expect resistance at 800 to hold and support at 780 to fail, leaving a large abyss below for the market to fall into. . .

H) Market closed halfway between S&R at 790ish. Perhaps tomorrow a replay?

What worked:

I traded well today, mostly scalps and a long reversal play at 780.

What didn't:

I held a small long position through the FOMC news release. While it worked out for me this time, next time I will be less distracted and remember to close out my positions by 2.

Tuesday 3/17/2009

2009-03-18T20:03:00.000-07:00

A day that started as range-bound but ended in a fierce rally.

I began trading poorly today and after suffering a $1000 drawdown I became frustrated and made a couple of poor choices was sitting in a $3000 hole. Then I took a time out, reduced trading size, and started making some smart scalp trades with $TICK. As the day progressed I moved my scalp size to 5 contracts and started playing longer. Given the duration of the rally over the past week I was not comfortable building a core long position, but I was able to reduce my loss to less than $1000 by the end of the day (+$2,000 before commissions). I was happy that I regained my bearings and traded effectively throughout the afternoon.

You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESM9

On the monthly chart we can see overhead resistance at 780 and (significant resistance) at 800. Below is support at 740, 700 and 665. I suspect 780 will yeild to the bulls and 800 to give them a significant challenge.

Intraday Chart of /ESH9

A) Market opens flattish.

B) A new high – maybe a trend day to come?

C) Higher low, trend thesis looking OK

D) Near the highs, a slight pullback, then an immediate assault taking out the high. Time to start building a position here if you believe the bull still has legs after the past week. . .

E) A lower low, I stop out my longs before here.

F) Another new high, time to go long on the next pullback

G) Market closes strong at the high. Very impressive run for the bulls this week. We have a good shot at taking out resistance at 780 and challenging 800.

What worked:

After a brief lapse in the morning I traded disciplined throughout the entire rest of the day, making my account +2000 before commissions. I didn't close with my overall P&L in the green, but I was trading extremely well while minimizing risk throughout the rest of the day.

What didn't:

I was upset with my losses yesterday and rushed to put on some trades early without any real edge. I do not do well with any kind of trade except scalps until after 10:00 or so. I dug myself into a -3000 hole that was impossible to climb out of by the close, with just 15 minutes or so of poor trading. As Pink Floyd says:

One slip, and down the hole we fall
It seems to take no time at all
A momentary lapse of reason. . .

Tomorrow I will make an effort to trade more intelligently and ignore my P&L from the past 2 days. Fortunately, discipline has kept me less than 2% from my high water mark, so hopefully we will trade well tomorrow and perhaps make it up and more. . .

Goodbye, Bennet

2009-03-18T19:54:00.001-07:00

I read something very sad yesterday.

It is a profoundly sad day in Minyanville as we mourn a tragic loss.

Today we said goodbye to a member of our family, one of our best and brightest, a good friend, a loving husband, a caring father and one heck of a talented professor.

I spoke with Bennet Sedacca last night, as we did most every day. The topics ranged from the state of the credit markets and the implications for equities to the upcoming NCAA basketball tournament and our plans to vacation at his new home at Haig Point.

At the end of the conversation, he said to me, “I can count my brothers on one hand and you’re one of them. You have no idea how much I love Minyanville -- how much I love our community -- it’s part of my family, it’s one of the things I’m most proud of.”

I told him the feelings were mutual - that he helped more people than he could possibly imagine, that his proverbial pebble rippled far and wide, that he affected positive change through the selfless sharing of his financial acumen.

I am blessed to have had that conversation, for it would be our last.

This morning I awoke to an email from his partner and close friend, Rob Roy: “Bennet slipped on the stairs last night and suffered a brain injury that he will not survive. We are waiting for family to arrive before his life support is removed.”

I sat up in bed and rubbed my eyes. My mother slipped on stairs the day before and broke her ankle. Surely I was dreaming, commingling 2 emails into one, confusing one situation with another. I read it again. The message was the same. I called Rob, who confirmed my worst fears.

For those who read Bennet, the takeaway was simple: He was wicked smart, a master of the credit markets and extremely proud of his name and word. He was early in seeing the financial mess, as evidenced by his front-and-center presence in House of Cards, the recently released book that will serve as a tribute to his acumen.

Those who knew Bennet will remember an acerbic wit wrapped around a heart of gold. He was a tough cookie who demanded the best of himself and those around him, and was never shy about expressing his opinion. We used to joke that we were both massively misunderstood, which is likely why we understood each other so well.

Bennet was my favorite commentator at Minyanville and I always eagerly looked forward to his cogent and accurate observations. My deepest condolences to his friends and family.

Monday 3/16/2009

2009-03-16T16:50:00.000-07:00

A rally day that ended with the rally selling off in the late afternoon. S&P and Dow flattish, NAZ loses 2%.

I was up $3000+ until the late afternoon when I decided the pullback was another opportunity to go long. I got stopped out with my trading value up $325 before commissions, unfortunately after commissions I was down $1,100 due to lots of round trips this session. My account value after today is $288,407.

You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESH9

On the monthly chart we can see overhead resistance at 780 and (significant resistance) at 800. Below is support at 740, 700 and 665. No significant changes today, except we saw the rally fail below 780 at the 775 area.

Intraday Chart of /ESH9

A) Market opened up a few points, I took a quick short scalp for a couple points.

B) A powerful rally move to a new high. I switch from scalping to building a long position during the pullback.

C) After the pullback, another new high. Good signal to buy here.

D) A significant new high. I sell all my contracts here.

E) A failed attempt at the previous high. Warning sign!

F) I am buying back into my position during this pullback. I'm annoyed at leaving a lot of coin on the table during the previous week's rally and not giving enough weight to the idea that the rally is probably very tired after 100+ S&P points over the past 5 days and the NAZ non-confirmation today. I get stopped out and leave most of my trading winnings on the table. After commissions I am in the hole. Got punked today!

G) Market closes down for the day! A good sign for the bears, ominous for the bulls going into the rest of the week.

What worked:

I traded the morning well, I was up on scalps and up on a core long position I took later in the morning.

In the afternoon, as I was very annoyed with losing all my session gains, I felt very much like throwing down some "hail mary" trades. However I became conscious of what I was about to do, and refrained from that stupidity, avoiding turning an insignificant loss after commissions into a more significant one.

What didn't:

I was annoyed at leaving money on the table during this entire rally. I determined that I would not do that today, and bought back into the rally even though there were clear signs of tiredness and weakness (nonconfirming Nasdaq composite, failed attempt at a new high, 4 days in a row of bullish action). I should have ended the day up $2000 after commissions instead I am in the hole $1000.

More thoughtful and disciplined trading tomorrow!

Account Value Chart

2009-03-15T09:33:00.000-07:00

Friday 3/15/2009

2009-03-13T17:59:00.000-07:00

A range-bound trading day that ended up 5 S&P points. My virtual account closed the day with a gain before commissions of $2,962, a new high for me trading range-bound markets. The account balance is at a new high of $289,587.

You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESH9

On the monthly chart we can see overhead resistance at 780 and (significant resistance) at 800. Below is support at 740, 700 and 665.

Intraday Chart of /ESH9

A) Market opened flattish.

B) Here is a pullback in an afternoon uptrend, I used this and $TICK to put on a couple of contracts long for a core position.

C) Market closes up slightly by 5 points in a range-bound day.

What worked:

I almost exclusively scalped ES using $TICK to determine relative strengths and weaknesses. I traded in sizes from 2 to 4 contracts, and usually got at least 1/4 point, sometimes 1/2, 3/4 and occasionally 1+ points.

What didn't:

Sometimes I tried to scalp at the top or bottom and got caught in a reversal. I need to avoid this by using both $TICK and chart indicators to decide when to attempt a scalp.

Thursday 3/12/2009

2009-03-12T19:29:00.000-07:00

Another solid day of gains as the bear market rally continues. My account closed up $9,105 before expenses for a new high of $287,710.

You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESH9

Intraday Chart of /ESH9

A) Market opens flattish for a change.

B) A pretty immediate reversal here. $TICK going positive so I go long for a couple points.

C) Yet more new highs. This is indicating a transition from a range bound day to a trend day, so I prepare to buy the dip. $TICK is also strong as it has been most of the day so far.

D) I buy the dip here.

E) A serious bullish consolidation back-and-forth at the highs. A very obvious signal to buy here!

F) Market closes strong with only a small pullback from the lows. A very nice trend day (with the exception of the early dip).

What worked:

I noticed clear signs from NYSE TICK and a buying consolidation chart pattern quickly that the range-bound regime had become a short squeeze / buying spree. I quickly rotated from small "scalping" trades to an accumulation of contracts and even added on some SSO to increase size beyond the limit of 16 contracts at TOS. This led to a nicely profitable day.

What didn't:

I was a bit less aggressive than I could have been at increasing my leverage as the profits went up. I also reduced size as the day went on, so my final profits were not as large as they could have been.

Wednesday 3/11/09

2009-03-12T05:54:00.000-07:00

Today was a choppy day of range-bound trading. I used Brett Steenbarger's NYSE TICK indicator to see when momentum shifted away from average price (VWAP) and made very small scalp trades to learn a new technique. My trading netted $750 before commissions, for a new high of $280067.

You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESH9

On the monthly chart we can see important resistance levels at 730, 740, 780 and 700 above, and support at 700 and 665 below. Remember, support and resistance are not "roofs" and "floors" but do provide areas where the ticker is likely to slow down and bounce temporarily, so they are good places to enter reversal trades with tight stops! I usually close out my reversal trades quickly if the ticker doesn't pretty immediately change direction and move away from the support / resistance level.

Intraday Chart of /ESH9

A) A large gap up (10 point range) provided a nice opportunity for a short gap fill trade, however I did not indulge.

B) A 'V' shaped reversal here with $TICK confirmation provided a nice entry for a long trade.

C) I went short at the market entered resistance. The market didn't immediately turn back so I quickly covered for a single tick.

D) The market touched resistance again but was unable to make a decisive break upwards, so I shorted a pair of contracts, then covered several points later as the move failed and $TICK began running back up.

E) The market closes almost flat. A decent amount of volatility today but no overall trend!

What worked:

Brett Steenbarger's NYSE TICK indicator was very helpful in judging when momentum was likely to continue or reverse. I made small, scalpy trades with his indicator and was profitable with those trades the large majority of the time.

What didn't:

Basically no complaints about the day's trading.

Tuesday 3/10/2009

2009-03-10T20:06:00.000-07:00

Turnaround Tuesday!

A huge short squeeze, biggest gain since November. Major indices up 6% today.

A great opportunity today for my style of trading, but unfortunately I did not take advantage of it. I made a small gain today, my virtual account balance is up $1,212.50 before expenses to a new all time high-water-mark of $279,464. You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESH9

On the monthly chart, we can see some important levels of support and resistance where we can expect prices to get congested and are more likely to bounce.

Intraday Chart of /ESH9

A) Markets opened up more than 10 points. I was expecting a big up day based on:

1) Record lows in a very oversold market
2) Many technical breadth indicators were pointing towards a large bounce
3) Turnaround Tuesday
4) Futures up more than 10 points

Unfortunately I tried a gap fill trade even though my basic plan for the day was a long move. Mixing strategies does not work well for me, and I lost a big opportunity to grow the account today. My gap fill trade stopped out for a loss around $500.

B) A big spike higher on high volume after virtually no gapfill movement, the market is sending a clear signal of a likely up trend day here.

C) Movement slows at major resistance at 700, sellers are taken out at this level. Another good indicator of an up trend day.

D) A range consolidation pattern. This is another sign of sellers getting taken out. I did buy the dips here but I sold blips, which given the signs of technical strength was not the best plan. My early loss from the gap fill made me tentative.

F) Another obvious buying opportunity

G) I got stopped out here flattish. Got back in but sold way too soon. I was expecting this rally to die after 3 PM.

H) Market closes at the high, an important victory for the bulls.

What worked:

My trading was very disciplined today, I waited for pullbacks to buy, my gap fill stop was tight. This discipline has saved me from many losses in the past, and I held up to my discipline today.

What didn't:

My most profitable trading is momentum moves, especially short squeezes like today. Instead I was fooling around with a gapfill even though I expected a momentum trade. Objectively, I have made almost none of my trading winnings on gapfill, and almost all of it on momentum. So I am going to put away gapfill for a while. I find that I cannot do a good job at both momentum and gapfill on the same day, I need to choose either one strategy or the other and look for indications so I can get in early and build a profit cushion so I can get more aggressive. Since momentum is my big winner and the markets are still volatile enough to deliver big momentum days, I'll focus on this strategy for now.

I should have been more aggressive about the clear technical indicators that buyers were going to roll over shorts today. I'll listen better to those indicators next time.

Kevin Depew nails it. . .

2009-03-10T17:30:00.000-07:00

Exactly right:

For example, consider the assertion - made almost daily by politicians and monetary policy figures - that all we need to do to end this economic crisis is “kick start” lending and that credit is the “lifeblood of the economy.” These baseless assertions infect news article after news article and are repeated by the vast majority of economists and market pundits over and over again as “self-evident” truths. . .

But think about it for a moment. Lending is actually a function of productivity, and productivity is a function of price. Lending to create productive assets is done by savers who want a decent return. They stopped lending a long time ago, long before this “debt crisis” erupted, because the return for risk wasn’t there.

In place of these lenders, however, there was the Federal Reserve, which has the unique ability to make credit available (i.e. print money) whenever they like, and essentially out of thin air. Fed credit availability, unlike the lending normally made available by savers, is not backed by savings. And so this credit made available by the Fed went to create assets such as houses, strip malls and office buildings that aren't productive. The net result of this has been a massive debt buildup that is now being liquidated, or deflated. When will this debt deflation end? When savers, once again, see a reasonable return for the risk. Unfortunately, this requires prices to come down - a lot.

Now go read the whole thing. . .

Monday 3/9/2009

2009-03-09T20:26:00.000-07:00

A choppy day that ended lower with a new decade-plus closing low on the major indexes. The gap down filled easily, running up in the later morning, and the price collapsing later in the day. We have seen a lot of this pattern recently.

I made a few small trades today. My virtual account balance is up $412.50 before expenses to $278,783. You can download my updated P&L excel spreadsheet here.

Monthly Chart of /ESH9

On the monthly chart, we can see a series of support levels giving up and becoming resistance, most recently at 700. We still have new support at 665 based on a massive short-covering bounce from that level.

Intraday Chart of /ESH9

A) Markets opened down. A perfect gap-fill opportunity, however I was in a meeting and unable to trade.

B) I suspect that 690 will prove some kind of support and go short at the 688 level with a stop at 691. I cover several points lower.

C) The market closes at a new closing low. The market "feels" like it wants to go lower. I suspect we are getting close to a rally, perhaps as early as "turnaround Tuesday:".

My Dos and Don'ts for profitable trading

2009-03-08T19:04:00.000-07:00

Do:

Have an edge for every trade you make

Buy dips and sell blips to increase your trade cushion of safety

Add size on pullbacks when momentum and profit is on your side

Scale into and out of positions

Don't:

Buy tops or sell bottoms

Chase missed entries

Enter trades without an edge

Enter trades to "make up" for a loss earlier in the day

Increase size to "dig out of a hole"

Place stops based on P&L instead of what the trade calls for (breakeven stops excepted)

Friday 3/6/2009

2009-03-07T20:37:00.000-08:00

Today the market went up, then fell all day, then rallied into the close to close out with a very slight gain.

I made no trades today. My virtual account balance is unchanged at the high water mark of $278,427 from yesterday. You can download my updated P&L excel spreadsheet here.

1-week Chart of /ESH9

On the 1 week chart, we saw the resistance at 700 reject the bulls attempt at it. Some possible new support in the 665 area.

Intraday Chart of /ESH9

A) Markets open up about 9 points. I am in a meeting and unable to make the gap fill play here.

B) I see the market racing up towards 700. I intended to put on a short in the 698-699 area but the market collapsed too quickly and I don't chase in this scenario.

C) This was a good opportunity to short here, a "lower high" but still high enough off the lows to make an attractive risk/reward.

D) Markets racing upwards on high volume. A possible long opportunity here for the brave (not me today!) Note that squeezes like this are always a possibility when charting new lows like today.

Pension shock to S&P 500 earnings

2009-03-07T17:16:00.000-08:00

Zero Hedge (one of my daily must-reads) explains why pension underfunding and losses are going to have a serious impact to S&P earnings for years to come. . .

Thursday 3/5/2009

2009-03-06T03:37:00.000-08:00

Today the market took back yesterday's gains, and then some.

The market started down, tried to rally, hit congestion / resistance at 700 and barely managed to vault it to the 703 area, and then started a slide down that continued the rest of the trading session.

A light day of trading for me, I made a profit of $1,150 before transaction costs. My virtual account balance is now at a new all-time high water mark of $278,427. You can download my updated P&L excel spreadsheet here.

1-week Chart of /ESH9

On the 1 week chart, some weak congestion in the 700 range which is slowing down the tape in this area but not stopping it. Perhaps it will develop to a more substantial resistance if the market continues lower.

Intraday Chart of /ESH9

A) Markets start weak. I enter a small gap fill trade and take it for a few points gain.

B) I trade around congestion at 700 looking to put on some small shorts here. I end up closing my position flat. The market touches the 703 area and then rolls over.

C) A very quick 6 point drop in a minute on high volume indicates heavy selling pressure. A good indicator to put on a short here on any bounce.

D) We've rallied 10 points off the low. The downside trending day thesis looks good so I go short here in small size (since the market is probing new lows, and I don't want to get squeezed into a sizable loss). I take profits about 5 points later as I lack solid conviction that the markets will close down. I continue to short blips and cover dips through the afternoon in very small size (1-2 contracts).

E) A small short-covering rally at the close. Another victory for the bears today. How low will we end up going, and how soon?

What worked?

I had no great conviction today that the markets would definitely close down hard and I had a lunch appointment so I kept positions small, only entered on the best risk/reward areas of the tape, and took profits relatively quickly. That strategy has worked well for me in the past on days when I was not totally comfortable with the market's action, and I ended up with a decent profit.

What didn't?

I didn't hold my gap fill trade long enough. I should have held it all the way into resistance, at least 699ish. My gap fill trade needs some work. . .

Wednesday 3/4/2009

2009-03-04T21:57:00.000-08:00

The eagerly-awaited, long-anticipated short squeeze finally arrives!

Finally we end the day up on the major indexes, although the close was weak and unconvincing.

Profit & Loss:

My best day since starting the blog, I made exactly $16,000 before commissions. My account balance is now $277,410. You can download my updated P&L excel spreadsheet here.

1-week Chart of /ESH9

Based on the past couple days of trading, I was not expecting anything very strong in the support or resistance categories. And that is indeed what we saw today.

Intraday Chart of /ESH9

A) Market opens up around 15 points, I put on 2 contracts for the gap fill, but close out with a 2 point gain. Pretty immediately I decide to go long since the market is so badly oversold and I am expecting a monster rally!

B) I start to build a core long position here, buying dips and lightening up on blips, 2 contracts at a time.

C) The position has started to go against me here, and my current balance is in the red. I have a stop in the 698 range, but fortunately it does not trigger. I've been adding to my position right at support using SSO (as ThinkOrSwim has a maximum size of 16 futures contracts) and as it blips back up I start dumping SSO to provide more cushion for my core ES position.

D) We see a series of new highs in the morning. A very bullish signal to wait for a pullback and go long.

E) I add to my SSO on the pullback here. A great opportunity to be in position for a squeeze expected late in the day due to the long rout of down days in the past couple weeks.

F) Another new high. I unload my SSO here and wait for a pullback where I start putting a bit in my shopping cart again.

G) A nice pullback, great buying opportunity for the late day squeeze I feel is very likely to come. I add a bit more SSO but do not take on a huge position since I am already carrying 16 ES contracts.

I) After 3:00 I sell off my SSO and begin to unload ES contracts. I know we are likely to see a significant pullback and I would rather start locking in profits to enhance my flexibility here. I know 3:30 is very likely to see a downturn so by here I am down to 6, then 4 contracts as the market weakens. I sell two more at the 718 level and am down to 2 contracts when my stop is hit at 715. A very nice job balancing the need to extract profits while providing for further strength that didn't materialize.

J) Boy am I glad I scaled out and didn't hold for the close! What an unconvincing finish for the bulls. . .

What worked?

My short squeeze thesis was dead on today. I played the trades well, trading around blips and dips to maximize my profit cushion of safety while maintaining a large profitable core long position.

What didn't?

My main fault today was I built up a sizeable position pretty quickly and didn't wait for a big enough pullback. I was sweating as the market probed support at the 700 level, hoping my stop wouldn't get triggered two days in a row. But the market went my way, and I ended up with a very handsome profit.

Psychology, investing, and trading

2009-03-04T18:57:00.000-08:00

As readers of this blog are no doubt aware by now, I am a huge fan of Brett Steenbarger. I'm not sure if that is because I am a nearly lifelong and die-hard Blue Devil basketball fan living a few hops from Tobacco Road, and Brett once played for that storied franchise, or just because Brett's ideas and writings have helped me clarify what I am doing right in my trading, and avoid the things that were not leading to success.

Something that became apparent to me, as I started to have semi-consistent success in trading, is that I could not psychologically "take" huge drawdowns. They lead to so much psychological pain that it becomes impossible to concentrate on the market and price opportunities, because I am focussed on avoiding the terrible feeling of suffering another loss on top of a huge drawdown.

We are now seeing the same factor coming into play in the overall investment market. Stock investors, having suffered through the agony of watching their equities sliced in half, and now abandoning the "buy and hold" principles they espoused when markets were going up and up. A strategy that works somewhat well on paper, but in real life founders on the shoals of human sentiment and inability to continually withstand the torture of a portfolio wipeout.

I realized that minimizing drawdowns was a key to my longevity and success in trading, as well as in attracting investors. A strategy that is more profitable over time, but results in 20-30% drawdowns on a semi-regular basis, is a strategy that is likely to be too painful to withstand, at least for people like me.

So I have shifted my trading tactics over the past month or so, seeking to even out my returns. So the way I am trading now, my "home run" trades end up shortened to triples, while many of my former "stike-outs" now end up as singles instead.

In the course of the trading day, this new approach works like this -- I scale into and out of positions. I do not put on a full-sized position all at once, instead I buy 2 contracts at a time, usually looking for an even better entry point for my second purchase.

I apply the same logic when selling. If price shoots up quickly in my favor, I often sell off a bit of my position. The futures market is very amenable to this approach, as selling one contract 20 times incurs the same commission as selling a block of 20 contracts all at once. So I feel free to add exposure on dips, reduce it on blips. This has the effect of reducing the risk of my position and gradually building up a "profit cushion" that can reduce losses when my guess about trend is incorrect, or even result in a net profit even when I am wrong about where the day's action ends up going.

Of course, sometimes price blips, I sell off a bit, and I never get an appropriate pullback to get back onboard. So I give up some of my overall profit in some conditions. Home-runs get converted to triples, while strike-outs often become singles. It means a lot less gut-wrenching losses, while some of your up 10% days become up 7% instead.

For trend-traders such as I usually am, this scaling out of positions holds particular import in the late afternoon. Sometimes a stock will ramp up (or down) right into the close, however we commonly see a trend reverse in the last 30 minutes of trading. If you have taken profits, a bit at a time, as the clock sweeps through the final hour of trading, you help to smooth out your trading account volatility. For example today I closed out pieces of my position beginning a few minutes before 3:00 PM, and ended up closing out my position at an average sale price in the 721ish area. My last two contracts sold when my stop was hit at 715 on their way to close weakly in the 710 area. It was a very good feeling to have closed out for a fat juicy profit in the 721 area and seeing the market sell back to 710ish. I gave up some potential profits if the market had rallies up beyond the mid 720s, but I was able to lock in solid profits, a bit at a time (to accomodate possible further upside in the remaining contracts) while still having some skin in the game to benefit from a hard rally into the close.

Smoothing out that P/L curve has a lot of tremendous advantages in peace-of-mind for the trader and for his or her investors. Recovering from a 1.5 percentage drip is much more easier than from a 15% drawdown.

Results for today

2009-03-04T13:00:00.000-08:00

Welcome to Michael Prescott's blog readers!

I thought I would add preliminary results for today, since my results yesterday were subpar.

Today up $16000 before expenses. A new all-time high water mark of $277,410.

I will post in full detail this evening per the usual. . .

Tuesday 3/3/09

2009-03-03T19:20:00.000-08:00

Yet another new low for the markets! The market opened up, traded choppy, and then sold off into the close.

Profit & Loss:

I am not perfect!

My worst day in a month, I lost $3775 before commissions. My account balance is now $262503. You can download my updated P&L excel spreadsheet here.

1-week Chart of /ESH9

On the 1-week chart we can see how this market has taken out every level of support in the past week of trading. 780, 750, and 740 were all blown through. Today I expected a bounce at 700 and played for it, 700 bounced the first time but failed on the second test. After hours, the market plunged again all the way to 681.

Looking at the chart, all levels of support have been lost. We may see support develop at 680 or 690. Tentative new support from yesterday at 700 got chewed through quickly and was ripped apart both as support and resistance several times today.

Intraday Chart of /ESH9

A) Market opens up around 10 points and then pretty quickly sells off, closing the gap.

B) Market approaches support from yesterday at 700 and I buy in at the 703ish level. I sell half of it a few points later, expecting the market to test support again.

C) I buy another position this time at a lower level, selling a bit a couple points later. As the price approaches support at 700 I put on a large position, 16 contracts, 1/2 of my full trading size with a stop at 697.

D) The large waves of selling swamp the index and trigger my stop, for a $3600ish loss.

E) I trim my losses to $3000 or so. I decide to buy a few contracts at the close of the session playing for a bounce in the premarket.

F) The market sells off hard stopping me out. My loss is back up to $3770.

What worked?

I was correct that 700 would provide some preliminary support. I was able to trade long from that support the first time and made some money, selling it quickly for a profit margin.

What didn't?

I assumed that support at 700 was likely to hold, but it did not which led to a trading loss. I put on a half-size position which in retrospect was probably too aggressive for the tentative and relatively untested support at 700. I also attempted a speculative trade at the close but did not have a strong measured edge on that trade, which I stopped out of for a further loss. Not a great trading day today by any means.

Monday 3/2/09

2009-03-02T20:48:00.000-08:00

Another new low for the markets today since 1997. The market sold hard at the open, made a weak gap close attempt, then fell apart most of the day until reaching the 700 level where we saw some bounces off support. We are very heavily oversold and there should be a large expectation of a snapback rally soon. Indeed in the afterhours the S&P futures are up 15 points.

Profit & Loss:

Today was profitable, I made $1,362 before commissions. My account balance is now $266,852, a new high-water mark. You can download my updated P&L excel spreadsheet here.

1-week Chart of /ESH9

On the 1-week chart we can see how this market has taken out every level of support in the past week of trading. 780, 750, and 740 were all blown through. Today we saw support forming at the 700 level which I expected would be a new "last ditch" for the bulls. Indeed they held the 700 level (briefly the market touched 698.75) and bounced, which I played for a small position long trade. I do not hold positions overnight, but if I did I would have considered a long for overnight at the 700 level. Indeed, the futures have rallied to 715 as of the writing of this post.

Looking at the chart, we have support at 700 and I plan to use it as a buying opportunity tomorrow if it is approached. On the topside, there is resistance from this week at the 780, 750, 740 and (possibly) 730 levels if we get some strong bullish momentum tomorrow. An upside trend day seems likely and we will be looking for evidence of that in the morning.

Intraday Chart of /ESH9

A) Market opens down 15 points, then sags some more, based on weekly downside momentum and a lack of any technical support levels. Then the market makes a weak gapfill attempt which falls far short. A downside trend day looks quite possible.

B) The "lower high" here provides a good opportunity to go short for aggressive traders who feel that a downside trend day is in store. I hold back because the markets are heavily oversold and I want to see some new "lower lows" first.

C) We see some "lower lows" right before here, and then a 5 point bounceback. I use this as an opportunity to go short with a small position which I cover after a few points profit.

D) The market tries to rally but cannot break 712. Based on experience on a hard downside day I expect the tickers to roll over here and head for 700 territory.

E) As the market approaches 700 I cover a short position, fully expecting a bounce. I put in a couple buy orders with a cost basis of 702 and a stop of 698. Probably should have put the buy at 701 instead. The market rallies and I limit order myself out at 704, a bit shy of what I could have gotten here.

F) The market closes near support at 700. If I were someone who took positions overnight I would buy here with a stop loss at 695 or so.

What worked?

I identified the trend day down and made some small trades on that thesis all of which were profitable. I saw the downside momentum slowing and became very nervous of a short squeeze, so I covered as the selling momentum picked up and sold short again on bounces, always with small positions (1/8 maximum size). I saw S&P 700 as a very important level, and I correctly identified it as a place where a bounce was very likely to happen, which I used to take a (very small) countertrend bounce position with hundred-level support and a tight stop backing me up.

What didn't?

I was a bit quick to cover today, and a bit quick to sell my one profitable long position just a bit above 700 at 704.

Friday 2/27/2009

2009-02-27T18:50:00.000-08:00

Another new low for the markets today. At 735 the S&P 500 has now closed lower than the intraday low of 737 back in November, and is at its lowest point since 1997.

I made a slight trading profit today (before commissions) of $225, after commissions my account dropped $132 today to 265,601.

This closes out the month of February. For February my account gained $25,351 for a gain of 10.55%. Year to date the account is up 32.71%, and up 165.60% since funding in October.

Profit & Loss:

Today I am posting some additional charts to help provide context of market support and resistance levels that are playing a very important role in trades this week.

1-week Chart of /ESH9

On the 1-week chart we can see some additional lines of resistance and (weak) support. I expect the decently strong resistance at 780 to hold and the support at 750 to fail. I would not in the least bit be surprised to see the final, fingernail-grabbing-on-the-cliff's-edge last-ditch support at 740 to fail as well, perhaps during tomorrow's trading session.

Yesterday I wrote that I expected support at 750 to fail. It failed spectacularly in the premarket and became resistance today. The market opened below our "last-ditch" level of support at 740, but quickly rallied above it. Most of today was spent rallying off support at 740 and repeatedly failing to break through resistance at the 750 level, although the market did briefly test it when it hit the daily high of 751.

At the end of the day, the previously breached support at 740 did fail and the market bounced around before ultimately closing at its intraday lows of 735.

Technically, the market has been severely weakened by the price action this week. Now that last-ditch support has failed, we could see the market continue to explore new depths next week. However the market is oversold and certainly could bounce on Monday and attempt to vault past resistance at 740, 750, 780 and 800. I do not expect any snapback rally to surpass the 780 level next week, and we can use the levels of resistance to define areas for entering short positions with stop loss buy orders right above resistance. We will be alert for both a snapback rally or further lows as March begins.

Intraday Chart of /ESH9

A) Horrible GDP revision for the 4th quarter 2008. 10 points on the S&P futures in a matter of seconds.

B) Market gaps down 15 or so points. I stand by on the sidelines, expecting a downside day is likely

C) After no big rush to fill the gap, I start shorting a nibble at a time in the high 30s with a stop at 45. The market moves against me

D) The market runs against me and just misses my stop. I give my stops a touch of "breathing room" so I can hopefully wait unti the market moved in my favor before closing out

E) The perfect opportunity to close out my position (my trading experience shows that when one of my stops is almost triggered, I am better off waiting for a nice movement in my favor and then closing out. Sadly I hold on my short here.

F) Stop gets triggered here. I am $2700 in the hole.

G) At the market approaches 750 I scale into a new short position.

H) I repeatedly short near resistance at 750 and cover towards support at 740. Stop is set at 752.

I) As I suspect the 740 support gives way in the late afternoon.

J) The market closes down near its low. A nightmarish day for the bulls, final support has ruptured and we are at new decade-plus lows.

What worked?

Using resistance and support for some short trades worked perfectly today. I made up my losses from a short idea that didn't pan out. I am going to use a weekly chart of support and resistance levels for all of my future trading sessions.

What didn't?

I tried to enter a short trade in the morning expecting a trend day down. However I did not use resistance to limit my losses, nor did I close out the trade when it missed my stop and then came back down close to my entry point. Based on historical trades I have taken, I am better off closing out trades that swing near my stop, and then go back close to my entry point since they end up taking out my stop 75% of the time, leading to a significant loss of 1% instead of a tiny one around .1%.

Trend day trades are also more likely to work in the afternoon, when price movements are less chaotic (on most days). I should remember this next time when preparing to initiate a trend-type trade in the morning.

Funny and true

2009-02-26T21:21:00.000-08:00

Which pond do you swim in?

Thursday 2/26/2009

2009-02-26T18:27:00.000-08:00

Today was a day that the market tried everything it could to rally, but in the end failed and sank down into another substantial loss.

My trading P/L today was zero. I was tempted to enter a trade a few times, but nothing jumped out and compelled me to buy or sell any contracts. . .

Results since I funded this virtual account with $100,000 in late October 2008 are unchanged from yesterday +165.7% (+$165,733). I checked my online trading statements for the virtual account from last year and discovered that I had funded the account with $100,000 for trading on October 27, not near the end of November as I had (mis)remembered.

Profit & Loss:

Today I am posting some additional charts to help provide context of market support and resistance levels that are playing a very important role in trades this week.

1-year Chart of /ESH9

Notice the S&P level of 800 that provided support many times in December through mid February but failed last week. It is now providing resistance and has been tested once so far, my guess is it will prove a very hard resistance so I will definitely use it as a likely area to launch short trades when the price nears it again.

1-week Chart of /ESH9

On the 1-week chart we can see some additional lines of resistance and (weak) support. I expect the decently strong resistance at 780 to hold and the support at 750 to fail. I would not in the least bit be surprised to see the final, fingernail-grabbing-on-the-cliff's-edge last-ditch support at 740 to fail as well, perhaps during tomorrow's trading session.

Intraday Chart of /ESH9

A) Market up 10-15 points in the premarket. Obviously the market is trying to rally and rally hard here. A gapfill is a possible trade here but I have not been happy about my gapfill trading of late so I am playing that on paper until I am pleased with my execution of it, so I sit it out.

Gap fills most of the way, afterward it blows up past the opening levels, making the upside trend day a definite possibility. I don't buy it though as I see significant resistance at 780 on the weekly chart including yesterday's session, and I contemplate putting on a short position at that level. That definitely would have been the profitable play of the day if I had gone with it!

B) The 7 point price collapse on massive relative volume here in a couple minutes is an obvious sell signal. Unfortunately I was in a meeting so I couldn't act on this one.

C) Market closes near the lows off 10ish points after a mighty rally attempt earlier in the day failed at resistance. This is very bearish trading action -- I will definitely be looking to see if support at 750 and 740 gets blown through tomorrow.

What worked?

Putting on no trades definitely worked. I did not lose any money today, and any day you watch and learn and don't lose money is a good day.

What didn't?

I had three trade ideas today, and took a pass on all three of them.

The first was gapfill which I took a pass on as I want to perfect my gapfill technique on paper as I am not making money on them net average. So I worked on my entry and exit and stop points today.

The second idea was to short right below resistance at 780. That had a great risk/reward profile but I let it pass as I need a bit more pencil-and-paper experience before I feel comfortable putting on pure support / resistance trades in the absence of confirmatory price action.

The third was the very large spike down at B). Since I was in a meeting at the time I was able to watch the price action unfold, but not to trade it.

My hope it to refine my gap fill technique to a worthwhile expected profitability, and my support and resistance-based trading so I can spot when a edge exists and take advantage.

Equities are a tremendous deal?!

2009-02-25T18:53:00.001-08:00

Equities a tremendous value. . .

At least according to the guy who wrote this in 2007:

The "Wizard of Wharton" says don't worry.
"If investors have cash on the sidelines, they should not wait too long to put it to use," says Jeremy Siegel, Wharton business school professor at the University of Pennsylvania and well-known markets commentator. "There are good values out there in equities -- especially in financial stocks -- and you will be rewarded in the long run if you start dollar cost-averaging now."

Jeremy, how is that "Long Financials" trade working for you?

Wednesday 2/25/09

2009-02-25T17:48:00.000-08:00

Today was a very turbulent day driven by Senate testimony by Federal Reserve Chair Ben Bernanke. Like FOMC announcement days, today was extremely choppy and (for me) difficult to trade, so I sat out most of the session.

My trading P/L today was $212 before expenses. My virtual account balance is at a new high water mark of $265,733.

Results since I funded this virtual account with $100,000 in late October 2008 are +165.7% (+$165,733).

Profit & Loss:

Intraday Chart of /ESH9

A) Market was down most of the premarket, but opens flat. No gap plays today since there was no gap! Given the premarket downside action overnight and in the morning, I was looking for a potential trend down day. The market began to sell off pretty much immediately, however I wanted to see it run down at least 10 points before feeling confident enough to put on a short.

B) Market continued down past my 10 point mark, but I never go short while the price is at its daily low. I waited until here with a nice solid bounce before putting on a 1/8 short position (4 contracts). I covered for a few points profit but didn't wait for the low.

C) A new low here.

D) Market has bounced back nicely. I short again, cover a bit for a profit, but leave my sheet -4 contracts hoping for a nice move down.

E) Bad move, after an initial swing down in my favor, the ticker blows up and hits my stop at 760.5, eating most of my trading profits from the AM. I am quite annoyed!

F) Up, Down, Up, Down, Up! The market can't seem to make up its mind.

G) In the last 30 minutes, the market falls off its highs and closes down 6 points. That is very typical of how many mixed days have ended up during this bear market.

What worked?

Watching the tape run down and down and down and wishing I were short -- but I wasn't at all tempted to try and establish a short position until the market bounced back up a few points. That put me in good position to make some quick profits this AM and is the kind of change that turned me from a money-losing trader for my first six months into a money-making trader the last six.

I was also wise to stay out of the market once it started bouncing back up, then down, then up, then down like a pogo stick. I'm sure there are many traders who do well in that kind of environment, but I am not one of them, so I simply sit aside and watch the price action unfold.

What didn't?

I should have "hit it to quit it" this morning. Morning trading is always a bit finicky, especially on the short side. I covered some of my position but left some open for "additional profits". Instead I watched the ticker run up and hit my stop, removing most of the day's earnings.

Thoughts on today's trading session

2009-02-25T17:34:00.000-08:00

After reading by Brett Steenbarger's blog entry linked to in the previous post, I started ruminating on my trades during today's session, and how they related quite well to his topic of discussion.

I usually “hit it to quit it” in the AM because morning sessions tend to feature a lot of sudden reversals of momentum. Today I kept on a small short position on hoping for more movement in my favor as the day progressed. After some favorable price action, it suddenly ran up against me, hit my stop, and took away most of my profits from the morning session.

It really ticked me off! So I was sorely tempted to “put on a trade” to bring my account back to +$1000 like it was earlier in the morning instead of +$200 after the unfavorable short. It was like an itch, and it wanted my trading fingers to scratch it. Fortunately I did not oblige.

The market does not care about your P&L. The market does not care that you just gave up 80% of your gains for the day. The market is the market. Your job as a trader is NOT to, at any given random point in time, figure out which direction the market is going to move, and then put on a trade to profit from that movement. NO! NO! NO!

Your job is to watch the market, learn how it flows, learn the very indicative patterns, and THEN and ONLY THEN when you see those patterns unfold wait for a good risk/reward setup and entry point and put on a trade.

If you try to predict where the market is going next so you can put on a trade and make $X number of dollars to pay you mortgage, make up for your last losing trade, pay for a ski vacation, or anything else, you can plan on Mr. Market mugging you and picking your pocket, time and time again.

Don’t trade like that.

Just don’t.

Wait for the market to tell you what it is going to do, and then act.

Traders should spend far more time watching the markets, and far less time thinking about their trades, setups, and (ESPECIALLY!) P&L, profits on the day, etc.

When you watch the market, just watch, and just listen, and just observe, eventually the setups will jump out and grab you by the shirt and say “short here!” or “long here!”. And then you might go ahead and put on a trade. NOT BEFORE!

Thanks again to Brett for his extremely valuable insights into the psychological dynamics that reduce (or eliminate!) profitability in trading, and how to recognize them and avoid them.

Great advice for Traders

2009-02-25T13:25:00.000-08:00

A few extracts from Brett Steenbarger:

Reading markets is not at all unlike reading people, with all the challenges of imposing our own meanings onto conversations, overreacting to communications, and missing the essence of what is being communicated. . .

. . . the competent trader will observe a shift in markets--a breakout from a range, a slowing down of trading--and adjust expectations and actions accordingly. The trader who enters the market with a fixed directional view and sticks with that view through minute after minute, hour after hour of contrary evidence is not unlike the bore who dominates a conversation by talking exclusively about what interests him. . .

Many traders don't trade with markets; they trade at them. Their failure is not simply one of communicating, but of listening. The socially skilled conversationalist does not barge into a party conversation by immediately talking. Rather, she will hold back, listen to the ongoing conversation, and then find a point to join the flow. An emotionally unintelligent trader will not first listen to markets; his job is to trade! Like a conversationalist who thinks his only job is to talk, the trader who thinks his only job is to trade will naturally operate outside of the market's rhythms. In a very real sense, he is not trading the markets, but his need to dominate markets. Little wonder such traders experience frustration when the markets don't yield to those attempts! . . .

I always read Brett first thing in the morning. Great stuff. Now go read his whole article, it's excellent.

Yeah, that's right

2009-02-25T12:54:00.000-08:00

More on the essential dishonesty of government intervention in the financial crisis:

According to Mr. Bernanke, Citigroup—CitiSmorgasbord, as we like to call it—has a “franchise value” that might be “lost” if the U.S. Government took over what Wall Street has marked down to a per-share price of less than the loose change in your pocket.

In fact, at yesterday’s close of slightly north of $2.50 a share, you could give up your morning Starbucks latte and instead buy a share of Citigroup stock, with enough change left over to buy a share of Fannie Mae, if you really wanted to speculate.

How’s that for “franchise value”?

Reading that, it bothered me. . .

2009-02-24T22:15:00.000-08:00

A couple weeks ago, another trading blogger wrote something like 'there was a 32 point swing between the high and the low, and if you couldn't make that profitable, you need to look at your system. . .'

Excuse me, but, NO.

I have been a student of markets for most of my adult life, and have been very focussed on learning how to trade successfully for the past year. And most of what I have learned, that has led me to become nicely profitable (in sim) the past six months or so, has been about drastically reducing the number of scenarios that I trade. And a big part of that has been the willingness to stare at the screen all day, not put on a single trade, and not feel the least bit apologetic about it.

The first decision I made about my trading, and so far the most important, has been to give up on all markets except one. That was a painful decision, made with the greatest reluctance, because I finally realized that I would never be able to master the trading behaviors and patterns of hundreds or thousands of different securities. But just one -- I had a shot at that. I could study one market, and watch it trade throughout the day, or at least look at the chart after close. And that is when I began to learn something about how markets trade (or at least how the S&P 500 trades. . .) And so I learned some patterns with a nice potential for profit, and began to apply them in my trading.

The second decision I made was in response to some continued problems I found in my trading. Although I had become profitable overall, I still found myself in many very unprofitable trades (and some very unprofitable days) with my emotional equilibrium very much off kilter during those drawdowns. With some reflection I realized that my profits were all coming from a very few, often very successful trades, while all the other kinds of trades that I was making were, on net, unprofitable and enormously frustrating. They were, in short, noise trades, and almost worse than the losses associated with them, was all the effort to figure them out, think about them (instead of focusing on the few high-percentage trades I was good at), and figure out which type of trade to put on next.

So I made a conscious decision to bag all of them, to focus on what works for me, to minimize my losses, maximize my winning trade percentage, and increase the profits from my winning trades. And boy is trading less stressful now!

And so, when there is a day that does not match my parameters, I watch it, I sometimes play with paper and pencil to see if I can add a new trading pattern to my repertoire. But I absolutely do not fret about all the money I did not make on that day (and am thereby spared from the likelyhood of fretting about all the money I lost by gambling on that day).

Our goal as traders is to be profitable and to enjoy our trading. Certainly being profitable makes trading much more enjoyable! Whatever niche works for us, whether 2-minute scalp-style trades, multi-hour intraday swing trades, multi-day trades, in individual equities, options, ETFs or whole-market proxies -- all of them are perfectly acceptable and valid ways to make money in the markets, and being a jack of all trades will often entail mastery of none of them, edgeless trading, and eventually washing out of the markets as trading capital evaporates. . . Sometimes profitability means sitting at your desk, watching the market all day long, and not entering a single buy or sell order. Let the ball come to you, do not swing wildly at every passing tick. . .

Tuesday 2/24/09

2009-02-24T19:31:00.000-08:00

Today was a very nice short-covering rally after six days of market losses. Whenever the market gets seriously oversold we can and should expect such a rally to appear at any time and watch for the signs of it getting ready to take off.

I had a nice profit today. I was looking for the rally and managed to get on board somewhat early today. Snapback rallies offer some of the best risk/reward opportunities for momentum daytraders like myself, because their signatures are very distinctive and they are somewhat less prone to stop-running countertrend moves and reversals than big downtrend days, so you can play them more aggressively with less chance of getting blown out.

My trading P/L today was $11,555 before expenses. My virtual account balance is at a new high water mark of $265,647 and there is a smile on my face!

Results since I funded this virtual account with $100,000 in late October 2008 are +165.6% (+$165,647), +32.73% (+$65,506) year to date, and +10.57% month to date (+$23,397).

Profit & Loss:

Intraday Chart of /ESH9

A) Market up slightly premarket. My bias for today is that we are likely to see a snapback rally after 6 days of falling prices. I do try to short the premarket with a small position but the market runs away from my entry point and I do not chase it (chasing the market leads to losses!)

B) Market up close to 10 points here and gap never closed. Bullish thesis looking good!

C) Whoops, market has gone down, down, down. Bullish trend day thesis is running on fumes now! Gap has pretty much filled, market is down to near-flat. But then it bounces back. If the market starts going negative the bullish trend thesis is probably dead for today.

D) From flat the market has bounced back up to new highs. However we are still early in the day and the market is only up 11-12 points here. Definitely a good chance of a bull run today though!

E) Another new high, up 15ish. Definitely smells like a bull. I wait for a pullback and then nibble on a few contracts. But we are still before 11 and I have an errand to run -- so I close out my position for a small gain to leave my slate clean. I know that most of the time there is a good opportunity to make a trade after lunch with a better risk/reward profile.

F) Market has pulled back 2/3 of the way to flat, but then bounces back up. Aggressive traders could use the bounce off the intermediate bottom here as an entry point for a long position, with a stop under the short-term low here.

G) Market has rallied near the session highs. I am putting on the bull costume, but I wait for a pullback for entry.

H) A pullback of several points tempts me to start putting on a small long position. I am long 4 contracts here with a basis of 752.25 and a stop loss at 745.

I) Market dashes upwards on increased volume very quickly with new highs. Aha! This is extremely bullish as the shorts are going to start capitulating now. I start adding to my position aggressively at every pullback. The odds are very much in my favor now. The technical analysis here is simply that the buyers have run up the price and the sellers are abandoning ship. It is a very reliable buy signal when the markets are this oversold! The longs are dashing forward, the shorts are caught on the wrong side of the tape, and fear is making them capitulate to stop the pain! This is almost certain to continue in a cascade of more buying and short covering the rest of the session, so I get very aggressive here in size. Notice how the bears keep retreating up the mountain here and can't dig in their heels to force any kind of signicant resistance to the upward price movement.

J) Another pullback means adding more to my position. I move my stop to prevent loss in the event of a reversal, but I am increasing my position here.

K) Again I am increasing my position here, but moving my stop up so the day will breakeven at worst. Bull moves can be played more aggressively than bear tears, as the dynamics of short squeezes come into play when prices are declining.

L) I back up the truck all the way here and am in full trading size. As ThinkOrSwim will only allow 16 open contracts, I use the leveraged ETF SSO to add to my position. Notice that even with all of my size I am still stop-lossed into a profit even if the market falls apart here. So my large size only risks giving back some of today's profits but I am positioned to make a ton of $$$ if the rally runs hard (which can very often happen in these short-squeezes in an oversold market).

M) I start to unload some of my SSO here as the buying momentum is slowing down.

N) I was expecting a selloff after 3:30 and here it is. I add back my SSO exposure, gambling the market will touch the high again. It usually does, magnetically drawn to the previous high point. However today is the exception.

O) I'm suspecting we will not see any new highs the rest of the day. I finished unloading my SSO at a nice profit and am unloading my /ES contracts in the 772-3ish level. I'm very pleased with the day's opportunity, and feel I did a good job taking advantage of it at low risk and high reward! Just after I finish selling my last contract, the market stumbles and falls down a few points and I smile.

What worked

Knowing we were due for an oversold bounce and watching for the signs worked perfectly today. We had:

1) Market up near its highs after lunch

and

2) A big spike up starting at 1:40ish blowing far above the previous range

This was a very clear buy signal. Using pullbacks to get very very aggressive in my position with a worst-case of breakeven or better if my stops were hit meant a huge win from a risk / reward perspective. This is what leverage is good for and where it can be used. Probably 90% of my profits come on days when I exert large amounts of leverage, and if used properly I avoid any sort of excessive opportunity for loss via stop management.

What didn't

I am pretty happy with my trading today. No significant complaints.

Why I am not sanguine about the "Second Half Recovery"

2009-02-24T18:45:00.000-08:00

Because the Obama administration, just like the Bush administration before it, is refusing to be honest about the nature of the problems we are facing. The profits, salaries and bonuses are private, but the losses are going to soak the taxpayer's wallet.

I'm happy to go long for a trade (like I did today) but I think we'll see Dow 5000 long before Dow 14000 again. . .
UPDATE: More BOHICA.

Monday 2/23/09

2009-02-23T17:21:00.001-08:00

Another "gap and crap" day of the kind we saw so often during the downdrafts in the market in October, November and January 2008 that performed the coup-de-grace for the bull market of 2000-2007.

My trading P/L today was $225 before expenses. My virtual account balance is at a new high water mark of $254387.

Profit & Loss:

Intraday Chart of /ESH9

A) The market has been up all night and premarket as much at 14 S&P points, indicating a possible upside trending day. We will keep that thesis in mind.

B) The market has softened a big into the open from its higher point about 30 minutes before. This weakness makes me choose not to go for a gapfill here (although obviously it would have been nicely profitable!)

C) Gap has filled a bit after 10. Market continues to slide downward making our upside trending day thesis look dead. Either a range-bound day or (possibly) a downward trending day are now in play.

D) It is now noon and the market has been trending down all day. I start looking for a possible entry point. The flattish market here (consolidation) is a very bearish sign -- markets almost always leave tight range-bound consolidation in the direction they entered it.

E) Air is flowing out of the bid. I'm looking for a sharp bounce off the lows here to get short.

F) We get a nice bounce off the lows, I was looking for at least 5 points. I go short a 1/4 position, looking to add to the short. Then I bring up a reference of the November S&P closing lows and notice it is right under my entry point. Respecting the strong possibility of a bounce at the closing lows, I cover my shorts for a small gain and decide to sit out the rest of the day (although adding to my shorts would have been nicely profitable!)

G) A nice late-afternoon second bounce on no increased volume, that fails to reach a previous bounce level for a defined stop / risk. I am tempted to go short here but resist due to respect for the November closing lows at 752. Opportunities are much easier to make up than losses! Other than the November lows weighing on my mind, this is a perfect technical setup for a short here -- a strong downtrending day with no earlier day "spikes" to make the chart iffy, still up almost 10 points off the lows, and 2:30 PM timeframe.

H) The market closes a couple points off the low. Hope you guys rode the wave down!

Friday 2/20/09

2009-02-20T17:18:00.000-08:00

A big gap down day and downtrending day until a massive spike at 2:15 PM leads to a reversal back to near breakeven. The market fell back afterwards about halfway to the lows.

My trading P/L today was exactly zero before expenses! Surprising after a short sale / buy of 18 futures contracts at a variety of different price points. After expenses my trading account value is $254190.

Profit & Loss:

Intraday Chart of /ESH9

Today I had to leave work at 12 so I planned to close out any positions before that.

A) The premarket was off more than 10 points today. Since the gap started to close a bit before open I decided to make a small short here.

B) I went short at 765 and again at 769 to a half-maximum position (16 contracts). As the market did not roll over immediately I covered 8 contracts at 767.5

C) As the market had run up almost to my stop and my time limit for trading is running out, I covered here, flat for the day (before commissions).

D) Given the market is down more than 10 points here after noon, this is a good opportunity to go short. I was on the road and unable to trade here, but this fits my pattern of trading.

E) A huge spike of buying here, 10 points in a minute or so. I happened to be at home just watching the market here and preparing for a trip. If I had been able to stay I would have bought the pullback at 765 with a nice size position. Note: This is a VERY high percentage trade(in the mid afternoon, less so after 3). Anytime you get a huge, superfast spike on large volume in the mid afternoon it will almost always follow-through after a pullback. If you were short here and somehow this spike had not hit your stop it would be IMPERATIVE to cover here!

Thursday 2/19/09

2009-02-19T19:08:00.000-08:00

A gap and crap downtrending day on the street, but one I didn't see until late in the day. A small gain today on my virtual trading account. Up $300.50 before expenses and a new all-time high water mark of $254316 (on a close-of-day basis, as always).

Profit & Loss:

Intraday Chart of /ESH9

A) Premarket is rallying hard, more than 10 points up. This would seem to provide a decent chance for a trend day up, but I am not looking for one. The stock is rallying to the 796 level but I know there is good resistance at 800 (it provided good support for 3 months with multiple tests). I put on a very small short here (2 /ESH9 contracts), mostly because this is not one of my "trend day" setups and cover a bit later for a small 1/2 point gain in the premarket a few minutes before the open.

B) Again the market has pushed to the 796 level and failed to make any headway. I put on another 2 contract short at 795.5 and cover a few minutes later at 793, luckily just as the ES starts heading up again.

C) I am not in the market today is it seems like a rangebound trading day which is not my cup of tea. We can see that the substantial 12 point gap has closed here.

D) The market rallied back up but has failed to reach its prior high. Not a bad opportunity to look short after this if you were a range-trader today.

E) The regular market session closes at 4:00 PM just north of the daily low. A clear downtrending day in retrospect (hindsight is always 20/20). I do not generally try to find trending days when the market gaps substantially in the opposite direction, as I find them more subject to late afternoon reversals than "plain old" trending days where the trend follows the gap up or down.

Why I am blogging here?

2009-02-18T19:05:00.000-08:00

Two basic reasons.

First, I believe that putting out my trades in this forum for all to to see will help me remain conscious of each trade as I contemplate putting it on, realizing that any lapses in judgment or discipline will be on public display. This will assist me to become a more consistent and profitable trader.

Second, I have worked hard to learn how to trade profitably and my virtual account is up 250% in the past few months. Putting out the results of each of my trading days and my ongoing and (hopefully continuing) trading success will (I hope) attract someone with available trading capital who would like to have me trade their account for a percentage of trading profits.

Wednesday 2/18/09

2009-02-18T18:36:00.000-08:00

A flat day of trading ranges on wall street. A small loss today on my virtual trading account. Down $237.50 before expenses.

Profit & Loss:

Intraday Chart of /ESH9

A) Premarket is rallying, and rallying more strongly towards the open up as much as 10 points. This is not unexpected due to the complete rout yesterday and the break into a new, lower trading range retesting the November lows. In the premarket it makes a move for its former support at S&P 800 which is now proving to be pretty strong resistance, pushing it back at 796.25. I enter a small short of 2 contracts at 9:28 at 793.72 playing for a gap fill. I cover a couple minutes later for a point and a half, much too soon and missing a nice complete gap fill all the way to even (and later lower, although usually a gapfill target is set a bit before the index trades even). I am up a puny $125 after this move.

B) I decide the market is going to trade in a range today, and feel it has bounced off a low of breakeven. I buy one contract at 786.25. Price sort of sits around here and goes up and I don't like the price action so I try to sell at 787 but miss it. I let it go and the stock keeps falling, falling, falling. I set a stop loss right under 780.

C) /ES hits my stop, wiping out my gains from the gap fill and leaving me a couple hundred bucks in the hole. I am done pretending I can make money in a range trading environment for today -- I'll work these out on paper before I start in on my virtual account again.

What worked?

The gap fill play near resistance was a good idea that just needed a bit more committment. Using a very small position to test out a range trade idea was a good idea instead of committing more capital.

Another thing that worked was keeping discipline and not trying to "win back my losses" in frustration. That has often turned a $200 loss into a $2000 loss while trying to trade my way back to breakeven when I didn't have an edge.

What didn't

I did not give my gap fill nearly enough room to work. I should have placed a stop above the trade and moved it down to breakeven after the futures worked down a couple points, then put in a limit cover 2/3 of the way to gap close. Instead I scarcely made a hundred bucks by covering way early.

On my attempted range trade move, I should have watched the market trade a swing high and a swing low and then back to a high to get more of a sense of the trading range of the day. I also should have played this trade on paper a few times before committing it to my virtual account where I keep score.

Tuesday 2/17/09

2009-02-17T18:32:00.000-08:00

Note: Yesterday 2/16/09 was a holiday.

Another Down day on Wall Street, but fortunately not for my virtual trading account. Up $4675 before expenses, account balance is a new high water mark at $254303.

Profit & Loss:

Intraday Chart of /ESH9

A) Premarket is off really hard after a slamming in Asia and Europe over the American holiday and again this morning. Futures off 20 points -- this makes predicting the day's trade very tricky as a gap-fill is possible, or a further sell-off.

B) Hard sell-off again in the premarket, setting up nicely for a gap fill.

C) Another sell-off in the premarket. We are now off 30 points in the S&P futures. This suggests a gap-fill trade is likely to pay off, and any short plays in the AM should be done very carefully with tight risk-management.

D) Market is open. I would be tempted to do the gap-fill except the futures have run up several points from the low. I find the highest probability gap fill is when the maximum gap is growing right into the open, so I am sitting this one out.

E) Market has run up to S&P 800. This is long-time support, likely to act as resistance since the market sliced down through it today. I put on an initial short position one contract at a time, averaging 798.5 .

F) Covering position at 790.5ish. Market is down too far to fast, I suspect we will have another opportunity to get short at a higher price. . . Whoops didn't quite call the bottom there, a bounce off 786ish.

G) As the market has climbed off the low of the day, I start adding shorts one contract at a time, layering on a couple at 790 but averaging 795. I end up with a 1/2 of full size position at a price basis of 795. Stop is at 801. The market enters a trading range over the next few hours. I pare back my trading position in dips around 793 as we have no new lows and I suspect the market may tear back up to 800 sometime today and I don't want to be holding 16 contracts short if that happens. I continue to "trade around" a core short position, adding to it on blips and covering on dips.

H) It's after 1:00 PM and still no confirmation via a "lower low" or even any real trend down. I'm getting increasingly nervous about an attempted push back to 800. My "core short" position is down to 6 contracts and I cover them here 790ish around 10 after 1, P&L is up around $5000 for the day. Price goes down to 787.5 but then we do see a big run up to the 796 range and I feel pretty happy that I covered a few minutes before that.

I) We've seen no runs up to 800 so I decide to stick my toes back in on the short side. I make a few hundred dollars on a couple of 2-contract shorts, then put on a 4-share short position. Just in time for the rip up to 800! I am stopped out at the 795 level. This was a poor trade choice -- bad risk/reward ratio, and has picked $1000 out of my pocket of earnings for the day.

J) Impressive run at resistance, but unable to break through. I am sitting out on new trades as I generally do the last 30 minutes of the day.

K) Market collapses at the end to hit the low of the day a few minutes after 4. Typical!

What worked?

Today was a large gap down which tends to have me looking for confirmation of a selling day. We did not see a downward trend today but rather range-bound trading at a lower level. However I am comfortable trading these days from the short side as they tend to break to the downside most often.

I used higher prices today to go short, and strong moves to the downside to cover which works very nicely on a rangebound day.

What didn't

Putting on new shorts just before 3:00 PM was not very advisable. In a rangebound tape we are very likely to see large spikes up after 3:00 which happened today exactly as expected, making a stop-loss trigger occur.

Thanks Mish

2009-02-14T12:31:00.001-08:00

From 2002 to 2007 I was invested 100% in stocks (turns out to have been a pretty lucky place to be). I bought into the standard spiel about how "stocks are the best long-term investment" and "bought into" the market with my 401K plan.

My friend and coworker Gerry got me to check out Michael Shedlock's blog a couple years ago. I started reading his "gloom and doom" about the financial system while the Dow and S&P were making new highs. I found his analysis cogent and compelling and immediately converted 30% of my 401K into cash. As stock prices began to decline in late 2007 at the beginning of the current global financial meltdown, I sold another 30%. And by May of 2008 I was 100% in cash in my 401K and have stayed so since.

I owe a lot of money to Michael Shedlock for pointing out the catastrophic problems in our financial system early enough for me to save my retirement savings. Thank you "Mish"!

Rules for losing money daytrading

2009-02-14T12:22:00.000-08:00

1) Sell short at new lows and go long at new highs. I lost real money doing this too many times to count.

2) Set close stops (because you are afraid to lose money). I once lost $4000 in a single day WHEN I WAS DEAD RIGHT ABOUT THE TREND because I was so nervous about my large positions that I set my stops too close and got stopped out half-a-dozen times. Real money, not my simulated account. :-(

If I had just kept my initial short open until the close, I would have booked that $4000 as profit instead. . .

3) Log into a trading IRC chatroom and buy what everyone else is buying. . .

4) Move your stops away from the price because they are about to be triggered, and you just know the price is coming back in your favor later. . .

5) Invest in BAC, C, and other insolvent financials since they are "so cheap" now. Well that's not really daytrading, but I had to list it anyway. . .

How I trade. . .

2009-02-14T12:04:00.000-08:00

Unlike many traders, I don't use a lot of tools to determine when to buy or sell. I set my chart to 1 minute bars (not 5 or 10 or 15), I don't use indicators, and although my style is a type of technical analysis, I don't look for flag formations, head-and-shoulders, or most of the other "usual suspects" in my trading, because I haven't found them profitable for me.

Instead I look at the overall mood of the day. Is there a big price jump up or down from yesterday's close? If so, I am definitely looking for further bullish or bearish action. Is the strength or weakness evident from the market open, or has the day's session been mixed? The former interests me greatly, the latter, not-so-much.

Assuming that we have a substantial upside (or downside) day and the trend from the open looks favorable (or if a gap fill trend on a really large gap fails and begins to break down seriously midday) then I look for countertrend / countermarket activity and get on board with a small position. If the market moves against me, but the countermarket move doesn't significantly change the overall "feel" of the day, I look at it as a great opportunity to add to my position for increased profits. However there is always a stop level placed (initially pretty far away from my initial position) and as a discipline I do not move that stop any further away.

I usually will not "put on" any more than a 1/4 of fullweight position until I see significant additional evidence that my "trend thesis" is correct -- for example, on a downtrending day, new lows count as "additional evidence". But I do not add to my position on weakness -- I would add to it on a countertrend move, usually just a little bit at a time in case the countertrend moves more for a better price.

In a day where I am especially "nervous" about the trend changing -- like Thursday -- I often "trade around" my trend position, adding on countertrend moves, and taking profits when a strong protrend price movement has occurred. I also tend to start taking profits in the late afternoon depending on price action.

In short, I look for day-long trends, use countertrend moves to get onboard the trend, and take partial profits when trading conditions make me nervous and towards the end of the trading session.

I will give some examples of my "trend trading" strategy in the near future.

Range-bound trading

2009-02-14T11:54:00.000-08:00

Brett Steenbarger is one of the best resources for anyone who wishes to learn how to trade profitably. He discusses the profit potential of range-bound days in this article about yesterday's trading action. Good stuff.

Friday 2/13/2009

2009-02-13T19:23:00.000-08:00

Are you superstitious?

I'm not sure that a Friday the 13th augers well for trading success. In fact, I did very little trading today and I made a bit of pocket change in my virtual account. + $200 - $14 in commissions. . .

Profit & Loss:

Intraday Chart of /ESH9

A) 1/13/09 9:28 Market just before open -- pretty much flat. The overnight session was mostly higher, trading up to 840.5 at the highest.

Looks like a range-bound day so far although it could certainly break to the upside or downside and I will be watching for that especially given the higher volatility this past week.

9:39 update – looks like I may have spoken too soon. The market is moving very close to the bottom of its premarket range. Given the depths the market plunged yesterday before recovering a downside movement today is certainly something to watch for. . .

9:40 new lows, definitely looking like a possibility of an interesting trend day to the downside. . . I am looking closely for the possibility of setting up some shorts based on what happens.

09:43:50 – put in a limit short one contract @ 828.75. Too late, missed the bid, market moving down, I cancelled the trade. At this point in the day I am very unlikely to put on much of a position since the morning is very volatile before 10 and it is usually 11 until a definitive trend makes itself known. However so far, the day is looking like a downside trend day possibility. We will look for additional confirmation and absolutely refrain from selling short at the low. . .

9:56 another new low. The possible downside thesis remains intact, so far at least. . .

B) 10:01 - I decide to put a couple sheckels on the table, betting on the downside thesis day. The stock has rebounded substantially but is below the daily high (so far) which gives some nice defined risk/reward here. I am not convinced of the downside trend thesis, so I'm only putting on two contracts here at 830.5 . . .

10:05 - Whoops! As soon as I lay down my short I am in the red. My "downside thesis" is looking decidedly improbable as the market continues to deflate the bear here. I think this is a range day now! Stop is at 835 and is uncomfortably close to triggering.

10:16 - Whew! I sweated out the rally and got a nice pullback. I covered my 2 contracts for 2 points each as I think the "downside thesis" is dead -- this smells much more like a range day. I expect the market to rally hard here soon. I feel very lucky to be up $200 instead of down $500 at my stop.

Where is the market going now? I don’t know and frankly, I don’t care. I’m trading, not investing, I don’t have to be in the market at all times or even most. The account balance doesn't go down when I am sitting in 100% cash. . .

The best thing I have done to improve my trading over the past few months is to STOP TRADING when I no longer have an edge. No “Noise Trading”. Noise trading is always unprofitable in the long run – don’t trade when you have no edge. ESPECIALLY not when you lost some money earlier in the day and are trying to “make up” your loss with noise trading AKA gambling.

C) Wow! That's about the fastest and hardest I've seen the market get killed in a long while. Flattish to -10 S&P in just a few minutes. I guess this is the bears paying back the bulls for yesterday's insane spike off the lows in the last 45 minutes of trading. . .

Thursday 2/12/2009

2009-02-12T22:11:00.000-08:00

A profitable day. Net profitability before commissions of $4635. A nice recovery from the morning session which I ended about $3000 in the hole. I am pleased with the day's trading, but there was certainly room for improvement and some lessons learned which I will outline below.

As usual, I am including two image files, the first is just a picture of the P&L summary from the day's trades, while the other is a chart of the emini S&P (/ESH9) with letters at various points during the trading day. Note that the hours listed on the chart are from the Eastern timezone.

Profit & Loss:

Intraday Chart of /ESH9

A) Preopen -- Futures are flattish, slightly lower. At this point the day does not appear to be a trend day.

B) Market Open Gap Down -- Futures have fallen pretty significantly, ES is off more than 10 points. I might consider a gap-fill trade except the gap has partially filled from the low around 9:20. I like gap-fill plays the best only when the gap is at its maximum size right at market open. Even then, I usually just throw a very small position at gap fills and today I take a pass.

C) First 15 Minutes -- I usually stay out of the market until after 10:00 AM. The significant gap down and extension of futures losses after the open indicate to me that this day is likely to be a downside trend day. I watch the ES coming back up from the thus-far low at 812.5ish and get ready to start establishing a short position. My rule is, begin putting on the position a little at a time and keep adding a bit more as long as the stock hasn't changed its bearish "feel" for the day. Continued countertrend movement up here gives more and more profitable opportunities to short, as long as the "downside trending day" thesis holds intact. I start laying on the shorts at 814.75 and end up with an average position value around 815.75. I am short 8 contracts at this point, 1/2 of the maximum 16 contracts that ThinkOrSwim allows. When I max out my futures I start adding SDS or SSO depending on bear/bull thesis, but only when I feel the opportunity merits a larger size. A bit after the D I start getting short again

D) Market jumps up, then hits my stop. Because I "traded around" my short, there is only a small loss.

E)After D I see the market failing to rally past 819 and get short again. After all, the market is still down 14ish S&P points, there are much lower intraday lows, and the smart money or "trading edge" here is usually for the market to head back down later in the day, eventually. . . I "trade around" my core short and make some coins until the market "Spikes" into my stop at 821! Ouch! Down $3000 or so despite my profitable "trading around" the core position. . .

I decide to go shoot some hoops over lunch. That goes much better than my morning trading. . .

F) I get back a couple minutes after 1. The market is trading in the high 8-teens. The intra-market-day-high is 825, still a significant way below flat, and the market is trending down. This is a promising situation for the market to fall later in the day towards the intraday lows or beyond, so I go ahead with my -$3000 profits and take another swing at the ball with a short. Again, I establish a core short position of 8 to 12 contracts and "trade around" the core to reduce risk of loss. The position looks promising enough that I increase my core short to 16 /ESH9 and start "trading around" with SDS instead in 1000 size. I've made up all my losses and provided a nice cushion thanks to my "trading around" to allow a breakeven stop in the high 8-teens.

G) Another countertrend rally but my "trading around" has paid off. I am still in a "hard core" core position of short 12 futures contracts and in the green even as the futures move up near 820. However the technical "picture" for remaining short has frayed so I do not increase my short position -- the markets look ready to rally in the absence of any really compelling story on why the bear is running loose. Fortunately the market soon breaks down again and I add smidgeons back to a core short of 16 futures contracts. The breakdown continues and continues. I begin to get nervous and start covering my shorts a nip at a time.

H) The market keeps going down for no discernable reason so I suspect a very strongly coiled spring. I keep covering my shorts, 2 at a time, until I only have 2 left in the hole. I figure for a bounce after 3:00 followed by a retest of the lows. I put 6 more shorts sprinkling 2 at 209, 210 and 211 and wait for the fish to strike. Suddenly the market blasts off. Whoops. The lines have all cought fish and now I am being dragged upwards with 8 short futures contracts to the 813 area. Too much energy! The likelyhood of falling back to the lows begins to recede. I dump two of my shorts at 213 and then suddenly: Whoosh! The other 6 stop out at 216! Should have left well enough alone and not tried to reenter my shorts today! That shaved $1500 or so off my profits. . .

Bulls make money, bears make money, pigs may not get slaughtered, but their piggishness will often lighten their wallets, and that's what happened to me at 3:15 today. I grin ruefully, happy to have made money today after being down 3 grand, and happy to be at a new high-water-mark for account equity. I have no desire to play the last 40 minutes of trading, as I have no edge here to discern whether the rocket will blast into space (it does today) or fall back to earth (maybe next time!)

What worked? "Trading around", technical setup (shorting spikes up on an overall very red day). I am very judicious about "trading around", if the market goes up 2 points I do not lighten up my position. Either "hit it" when the profit is too juicy to pass up or just keep it in your core position for later. . .

Covering out all but 2 of my contracts by 3:00 PM was a big win. I could see the spring coiling and figured we were going to see a moonshoot, especially given the lack of a fundamental driver for the selloff. The move up at 3:08 was explosive, and a stop essential to avoiding a trading catastrophe.

Avoiding the temptation to "get back" into my short too close to the trading range was very smart. Doesn't meet the "risk-reward" formula!

Playing basketball over lunch was a great way to get my mind off the morning's poor trading results, and provided fresh eyes for the screen.

Too often, trading losses lead to cloudy vision which leads to more and stupider losses and even gambling. And if you forget your edge, the house always wins!

What didn't? Missed some "trading around" opportunities because the software was too slow to let me cover some smidgeons when I wanted to.

Attempting to "get short again" after the inevitable spike up was too cute by half. I should have smiled at my profits and been happy with them. The core reason for this trade was an attempt to make up for not covering all my shorts under 808. When I feel I have given away profits, I get greedy and want to make them back, even if there is no edge. Realistically, you are never going to sell at the top and buy back a the bottom, that should not be the goal, only finding "edge" and executing it. . .

More background

2009-02-12T21:50:00.000-08:00

There is not much value in publishing a blog about trading if one is not a successful trader.

So far, my success is preliminary, but promising to me, especially after floundering around with my trading for much of 2008.

I began trading using simulation software in October of 2008 (in my case, the PaperTrading mode of the ThinkOrSwim online brokerage). After learning to use the software and the basic mechanics of successful daytrading, since October 28, 2008 my simulated account has grown from $100000 to $249778. Every month so far it has increased significantly from the previous month's closing balance. Most recently I have been reducing the volatility of my account balance by changing the way I trade (mostly by reducing my positions in overbought / oversold trend moves, and increasing them back on countertrend moves). This reduces the psychological and stochastic risks of trading -- it can be an emotionally devastating blow to watch a few botched trades drain your account of 30 large in the course of a single day, even when those trades are virtual, not real, dollars!

Obviously it is important that I continue a track record of consistent trading success. I hope that this blog will assist me in that goal by continuously looking at what trading ideas and "edges" are working, and which ones are not. I hope the reader will also find this blog of value.

Background

2009-02-12T20:44:00.001-08:00

I have been interested in markets and trading for many years. I briefly attempted to daytrade internet stocks for about a week in 1999 during the Dotcom frenzy, lost some money trying to jump on momentum bandwagons from IRC chatroom picks, and went back to my day job as a software developer.

More recently, I decided to give trading another try. This time I decided to eschew chatrooms, etc. and make my own picks. I tried daytrading stocks again, made a few shekels, lost more, and stopped again while trying to figure out what wasn't working. Eventually I figured out:

1) Daytrading stocks is HARD! Every stock has its own float, news cycle, earnings releases, price, shares outstanding, volatility, and liquidity. To daytrade stocks successfully you are trading against other participants many of whom do nothing but trade that issue and maybe a couple of others EVERY MARKET DAY for the past 2, 5 or even 10+ years. Unless you specialize on only one or a few stocks, and follow them religiously, you are badly outmatched here. The typical stock daytrader hears a "recommendation", enters a ticker in his software, looks at the chart, and enters a trade. Most of the time he has never looked at this stock before, and may not even have heard of the company. . .

2) Daytrading stocks is HARD! Stocks are really volatile moment-to-moment and liquidity varies greatly, particularly when there is news extant driving price swings (which is when you would want to trade them). It makes using stops exceedingly difficult, but if you don't use stops you are jumping from a plane without a parachute. I found that I was often absolutely RIGHT about where a stock was going, but that I would get stopped out just before the stock started moving decisively in favor of my trade.

3) Daytrading stocks is HARD! Stock prices take much of their momentum from the overall market. So in order to make money daytrading stocks, you have to keep track of the stock you are trading as well as the broader market. Lots of variables such as -- how closely does this issue track the market, how is this stock's sector trading, etc.

4) Trading the broader market levels the playing field. There is one big market for everyone (the S&P 500), and all traders can watch it all trading day, every trading day. So you get to know how the market moves, how it rallies, how it breaks down, range-bound days, and days when the bulls or the bears get taken "offsides" and a tradable momentum movement happens. . .

5) Trading the broader market is LIQUID trading. SPY, the S&P 500 ETF, is by far the most actively traded issue every day in the market. ES (emini) Futures Trading is even bigger! Massive volume means minimal slippage and issue volatility versus the underlying market. While sometimes the market itself is extremely volatile, it will always be less volatile than the stocks that daytraders are chasing up and down. . .

6) Trading the broader market means you don't have to figure out the floats, trading volume, liquidity, of hundreds or thousands of different issues on the fly. . .

7) Trading the broader market means total control over position sizing. You can trade plain vanilla SPY in increments of a hundred bucks or so, step up to SDS or SSO for 2x leverage, use margin (and 4x daytrading margin) if you like, or control futures contracts or purchase options for even more leverage. But remember! Only use leverage when you are in a winning setup, and never use it to gamble on a noise trade.

8) After a lot of investigation and evaluation, I decided that trading ES (emini S&P500) futures contracts made the most sense for me. Low commission costs, almost 24hrs x 6 days per week trading to allow safe overnight position holding, favorable tax treatment, no restriction on $25,000 daytrading minimums, and maximum liquidity in the market led me to this choice. For other people, trading SPY or SDS / SSO or their options might be a better option.

9) After a lot of experimentation and evaluation, I found that daily momentum trading works best for me. That is, I buy and sell (or sell and then buy) on the same day, and my trades are based on identifying "trend days" when either bulls or bears have the momentum. I do not trade on "range days". I usually establish a "core position", long on bullish trend days, and short on bearish trend days, and usually "trade around" the position, increasing the position in countertrend moves, and decreasing it when the trend gets overbought/oversold.

10) Once you "have an edge" (ie: can identify patterns that present a good risk/reward profile), the key to success at trading is emotional intelligence. Success at trading absolutely requires the ability to overcome your natural human tendencies to allow greed and fear to dictate your buying and selling decisions, instead of the patterns and "edges" that reveal themselves in the market.

Who am I?

2009-02-12T20:35:00.000-08:00

Welcome to Quiet Trader.

The name "Quiet Trader" is a tongue-in-cheek reference to the opposite of "Noise Trader". Yes, I know "Signal Trader" would be more accurate, but it sounds like a late night infomercial get-rich-quick scheme. . .

This blog will describe my journey into trading, and describe in general terms the trades I make each and every day that I trade.

Right now I am doing simulated trading, until I either:

1) Find an investor who will allow me to trade his or her account for a percentage of trading profits

or

2) Finish paying back my 401K loan so I can borrow a trading stake from my retirement savings.

My hope is for 1) since 2) will be several years out. . .