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If you look closely, you can see the bull laughing because . . .
the breakout from the early morning range was solid and the trend was up, up, up, all day.
(5 min bars with 20 and 50 emas. Open at 7:30 mountain time.)
I got a few longs and a few (small) shorts and finished the day up about $160 on micros.
From this I have to subtract commissions.
I made the mistake of thinking that yesterday's big red bear bar would mean something to the market today.
I thought too hard.
I should have just remembered to "trade what you see" instead of continually anticipating a reversal.
If I had done that, I would probably been up about $500 today on longs.
The bulls just laughed today and whooped all the bears back into hibernation:
I had a discussion with 30-year trading veteran and friend today, and I was less than enthusiastic about my performance.
He reminded me: "The best thing is to have NO OPINION for the market."
I agree that having no bias is an important key to successful trading.
There are dozens of reasons for the market to go DOWN here, but there are also dozens of reasons for us to keep going UP and making new All Time Highs, week after week.
Our job as traders is to NOT think very much at all, but simply exploit the existing movement.
Today's chart truly highlights the power of the moving +1SD as support in a rising market:
(7 tick ES Range Bar with 20 EMA in dashed yellow and +1/-1 SD in blue and VWAP in solid yellow.)
Notice how once we broke above the +1SD (heavy yellow circle), we stayed above it almost all day, reaching all the way to 4167. Wow.
Notice how the two times prices dipped down to the dynamic +1SD, they were immediate bought again (light yellow circles).
I have posted many charts in the last two weeks with moving averages. They work great to help define the trend.
For the last 15 years I have used a solid red 50 simple moving average (SMA) as my primary indicator on all charts. As long as price was not too far away from the line (calling for a pullback), I could usually trust the trend. (I mentioned my old Redline FX system early on in this journal. "Redline" was not just the high tachometer, but also the color of my 50 sma!)
(50 sma on a 5 min ES chart)
Notice how the trend (or lack thereof) is easily seen?
As I mentioned previously, I believe that ANY decent indicator set on ANY setting can give valuable information and a trader can benefit once they spend enough time with it to train themselves on how the market acts around certain price points.
Why do MA's work? I think like fib levels, they are mostly a self-fulfilling prophesy! Enough traders use them to reinforce the patterns....
There is no magic indicator. The magic happens with what you do with the info!
This being said, I really like the 50 sma because it is not too fast nor too slow most days. And I think adding a 5, 10, or 20 sma is a nice complement for faster action.
Currently I am trying the 20 and 50 Exponential Moving Average (EMA) after a friend showed me several of his charts. This pair of EMAs has a nice balance. But again, the key is in my training watching them. It doesn't really matter what I use.
Why use any MA at all? Isn't price good enough by itself? Yes, trading naked charts can work (and I do it sometimes), but when I need to make quick decisions, the MA can summarize price nicely for me. It will say UP or DOWN or FLAT.
Also, I trade with all four indices MES, MNQ, MYM, and M2K. A moving average in each chart allows me to quickly compare charts to decide which I want to focus on for the moment. Which is flat? Which is moving? Which is the one to buy. Which is the one to short?
For many months I tried red/green colored MAs, and I loved them, but (for me) it makes the chart messier when I am using red and green candles.
I have mentioned "Dynamic" Support and Resistance. It has been amazing how often I have seen price dip down to a moving average to the tick and then bounce up again. They act just like horizontal (fixed) S & R areas often and traders reject prices based on them.
Since we know that 90%+ of the market is controlled by algos, it logically follows that programmers think certain MA's are very important.
Swing Traders and Investors use large time-frame daily moving averages like the 20 and 50 and 200. But for day-traders and scalpers, these are much less relevant.
Once of the most pressing issues in trading is always "Range or Trend?" A moving average like a 50 sma can be so helpful here. If the 50 sma is flat, then we are in a range, and I want to BE FLAT TOO. Alternatively, I could consider Range Trading and looking for rotational moves to the midline as discussed previously. Of course it is your own screen time that is critical in learning "the right look" for deciding the range condition using your MA.
Buying Dips and Selling Pops. Perhaps the most important and high-probability trade on the planet is the "buy the dip" trade. A close second is the "sell the pop" trade. (The "buy the dip" trade wins only because the market is mostly bullish.) Notice all four of the great entries here! And entire book could be written on this setup alone.
Good long-side traders have lots of confidence that their entries with the trend will pay off, and maybe even pay of big. And they usually do. But it takes lots of practice to build the confidence to take a long when the short term direction is down! The "sell the pops" trade is one of my favorite, but candidly, the long side "buy the dip" trade is still elusive for me at times, revealing my unjustified and foolish predominantly downside bias.
Moving Average Cross. Perhaps one of the simplest mechanical trading systems is derived from the crossing of a faster ma above or below a slower. The 20/50 crosses look like this and would have been good entries.
What is the best setting for this system? HAHA. I have no clue. It changes daily and maybe even hourly! We all wish trading were as simple as plugging in two numbers.... I am sure the algo writers are now dynamically adjusting these numbers on the fly. For the rest of us? The only answer is "screen time!"
Rubber Band Trade. One of my favorite trades is the "snapping back" of price to the moving average. It works especially well if the MA is angled one way and price is moving the opposite way. The MA is made up of the prices from many bars, and is demonstrating a weight, a momentum, in a certain direction. And when the most recent price takes off another way, it is as if all the other bars are saying "Woah Charlie, not so fast!" and they yank Charlie back to reality. With this trade, you really are "trading with the trend." Here are three examples from last night's ETH session.
A variant of the rubber-band trade is when the MA is going the same direction as price, but the price is stretched "too far" away. However, this variant is a counter-trend trade, and can be very dangerous as price may continue to run much further than you ever thought possible. Be sure to use a tight stop in this case! Here are two such trades from yesterday's "running of the bulls." Price was stretched "too far, too fast" away from the 50 sma, and it snapped back over the next few candles.
But this rubber-band variant is purely a fast scalp trade, and there is no justification for expecting more than a few ticks of profit. It is a low-probability, high-risk trade. "Fading the trend" has killed me more than any other single trade when I haven't been careful with my stop, but I still love it and consider it one of my favorite scalp trades. This being said, I am using it less and less as I am trying to get bigger, more "high-probability" trades with the trend.
When using MA's, it is important to understand the math of the moving average. A simple MA is simply averaging price over the last X bars. Try creating your own 20 period SMA with a spreadsheet and 100 numbers! You can see that the moving average indicator always trails or lags behind price. John Ehlers says "No indicator can precede an event from which it is derived."
But this doesn't mean that MA's can't or shouldn't be a mainstay in your trading arsenal. So many people and algos use them.
So plot a few MA's and enjoy the show.
Trade well! (three fingers pointing at myself!!!)
-----------
The Thursday market just opened. Notice the bounce off the 20 EMA on the 60 min ES chart.
I only did about $120 today after commissions on micros. But had I not been careful it could have been a disaster of a day. I know someone who lost $2500 today. I am sure there are lots of people who got burned today.
The market was slowly grinding up in the morning, and then we had a big surprise as Biden's proposed tax changes started to settle in to the consciousness of the market:
Cause and effect? Could be... but you never really know. Humans have an innate need to understand, and they will make up lots of stuff to fit what they see. And then the cynic in me says the big boys put that out there just as an excuse for some profit taking!
Here is the 5 min chart of the day today with 20 & 50 EMAs:
What will tomorrow bring?
I have finally given up trying to figure it out! This market is nuts. Therefore I can say with great certainty:
It will be up or down!!!
But IF it goes down, there are some magnets below us on the daily chart. These magnets are also great places for a reversal too. The first three are
4100
4060
4000
(Daily volume delta chart with yellow daily POCs, and yellow 20 EMA)
And of course the 20 day EMA at 4080 should be included for sure.
Remember the market can drop about 7 times as fast as it rises. So just look back 7 days...
Alternatively, new All Time Highs could be just around the corner.
Nobody really knows....
As such, being a "day" trader who is flat at the close is the best way to trade - in my opinion.
I talked with a trader today who was very frustrated because he broke his rules yet again and did some bad follow-on revenge trading.
He asked me , "Have you had this problem in the past? How did you overcome it and improve your discipline?"
This is what I wrote back. Perhaps it will help someone, and is a good reminder for me:
"What you describe has afflicted all of us, and still affects most of us.
You are fighting against fear and greed which have been handed down from our ancestors.
Fear protects us from harm and greed helps us find ways to improve our lot in life.
But the successful trader has to flip these two on their head:
You have to feel the fear and take the opposite position from what you want to do most of the time.
You have to see the greed and recognize it for what it is and fade it most of the time.
These two things (buying lows and selling highs) are the essence of profitable trading because most of the time the market is in ranges.
It has taken me many years to figure this out, and many more to not get killed, even with this knowledge right in front of me. Why? Because, the herd is often RIGHT in the trend trades.
So, when do you go with them, and and when do you go against them? There are so many variables, and I can't give you an easy answer. And I still make so many mistakes myself.
95%+ of traders fail. There is no shame in losing in this game. But to become part of the 5% is a painful and long process. . . . Unless you become a master algo writer. But what fun is that?
Be patient and be kind to yourself as you stumble through this, and listen to others who are succeeding - if you want to continue with the journey.
My first and most important help for you - beyond helping you have realistic expectations - and being kind to yourself despite the failures is this:
Trade so small that taking the disciplined loss does not hurt much.
Try one micro and be consistent for two full weeks. Then do two micros for two weeks.
You will be amazed at how your account grows and your psychological strength to remain disciplined will grow right along with your account size.
Your losses become measured in ticks and not dollars, because as the account grows, the % loss is roughly the same as it was with just one micro!
You have to be (mostly) perfectly disciplined with one micro first
I am a bit embarrassed. The market was so stinking strong today, but I only got a few small scalps.
We reached all the way to new ATH's again today at 4186.75 on the ES. The Bulls are certainly still in charge.
I also work as a real estate agent, and I was busy right at the open, which was the time to get long today for sure.
Based on yesterday's big down day from the capital gains tax scare, I kept thinking we'd head back down again, but it never happened until right before the close. Notice the chart below and see the two big Resistance levels from yesterday at 4150 and then at 4170. These were two logical turning points that never materialized. I should have been long the moment we broke each of them!
My win rate was good today at over 80%. And uncommonly, my winners were bigger than my losers. My winners averaged about 7 ticks, and my losers averaged about 5 ticks.
But I have got to do better about just going with the trend when it is strong, and not fighting it.
I still have a mental hang-up about longs near highs, both on the daily chart and with the market as a whole being at ATH's. I need to just get over it, and be willing to buy the highs. Some of the best moves up are above old highs.
My daily profit target is fluid (about $200 right now), but I have been falling short. I am not trading with enough contracts, and my trades have too few ticks. All the recent volatility certainly justifies lowering my risk. I will just breathe and be happy my account ended in the green today.
Monday is a new trading day, and we will keep going.
I wanted to pipe in here, since this post really hit home. The same thing has happened to me many times. The words "It'll come back" rang out in my head over and over as I averaged down. Once in a while it came back--sometimes during the same day, and sometimes over a sleepless night into the next day. More often than not, though, I just lost too much money to mention and blew up accounts. I still struggle with stops. I only recently did the same thing again, but before I let it run too far I got out. I am waiting a bit before I get back in, and am focusing strictly on getting out if/when (and more importantly WHEN, since nobody is 100% right) my trading idea is wrong.
What is your "Trader Type?" / No More Blowups / Baby Steps to Consistent Profitability
What is your "Trader Type?"
My wife and I talked about personality types this week. Fascinating stuff. There is lots of scientific evidence to support the idea that we are really all very different.
And I just watched a video put out by an incredibly fast scalper.
These two things, along with my "failure" to get on the huge trend yesterday, really got me thinking about "trader types."
We each have to decide our own "speed" as traders, whether we take one trade per week or one trade per minute.
We each must find our own way and find methods that work with our own personalities.
I am slower than some traders, but faster than most. And yesterday was a great example of how my fast style got me in trouble. We had one of the biggest bull ranges and strong trends in weeks, but I missed out on the opportunity to "make a killing."
But one of my friends made $2.5k yesterday!
However, there are days this same friend loses $1.5k and I make $300 with just micros. So go figure.
There is no "right way" to trade, as long as you consistently make more than you lose.
Find your "trader type" and master it. Whatever you decide to do, each method requires great analysis and discipline.
I know traders who review and analyze each trade they take, and take at least an hour doing it each day. This works for them because they are only taking 2 to 4 large trades a day. If I did this with 20 to 40 scalps, it would take me hours!
As mentioned previously, my journey and journal right now (along with being consistently profitable) is about finding the balance between scalping and bigger trades. I feel that I am a bit too fast for my own good. I can scalp up a storm, but I am missing out on some great opportunities for massive profits.
Your own journey may take you to swing trading or maybe trying to click faster than an HFT algo (not recommended!).
There are so many free YouTube resources out there to help you decide on your own style and put together your own trading plan. Spend the time and practice on sim, then practice on one micro only until you can be consistent.
I don't want to tell anyone what their "trader type" should be or how to trade in any way except for the next two items on my mind, which are universally applicable regardless of your style. Again, I am mainly preaching to myself:
---
Be Prudent - No More Blowups!
Because we have micros now, there is no reason any longer for a trader to blow his or her account over and over again like I did getting to this point. Stop blowing your account! Stop it!!! Use the micros as your low-risk training ground.
Be intentional in your trading. Be deliberate. Don't just "put on a trade" haphazardly. Don't revenge trade. Treat it like a job, not a hobby: don't get fired from your trading job because you were derelict in your duties. Treat the money in your account like you are trading your emloyer's money, not your own! To do anything less than this is gross negligence or worse, criminal. You are stealing from your "employer" and from your family if you are not doing your very best at all times. (And doing your very best doesn't mean there are no losses...)
----
Take Baby Steps.
As I have mentioned before, becoming a consistently profitable trader does not happen overnight. You are fighting against human nature at every turn. But it can happen.
But you have to be logical and patient and (mostly) unemotional during the whole process. This is my strong recommendation:
(1) Study, study, study, then
(2) Paper trade until you are consistently profitable with your "SimBucks," then
(3) Trade live with only ONE micro (MES for starters) until you are consistently profitable, making at least $25 per day for 10 trading days.
Seriously! Do it this way. Only by trading with real live money can you have the correct emotional conditions for proper training of your trading brain. You can't fool your subconscious mind. The real YOU is much smarter than that wannabe Grand Master Trader trying to get out. LOL. It knows when you are faking it.
The risk and reward centers of your brain have to be properly firing for any good trading to be helpful long term. You truly can become that Grand Master Trader only when YOU and "you" are synchronized.
Also know this-- you want to get OFF of sim and onto a live micro account as soon as possible. Paper trading (for too long) can reinforce some bad habits, like "invulnerability." A good friend told me recently "On Sim, I AM MASTER OF THE UNIVERSE every day." We both laughed because it is so true. It is important to have this confidence, but only if it leads to the next big step: at least $25 of consistent live profits each day for at least two weeks.
