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We all search for it. That one indicator that will make us rich beyond our wildest dreams: "The Holy Grail of Trading."
Well, guess what?
I found it! I found the Holy Grail!
You heard correctly.
I joined King Arthur and the Knights of the Trade and we actually located the Holy Vessel . . .
Let's have Monte Python help us out a bit: (1 min video)
Read on, dear trader, if you dare, and let Blessings from the Lord of the Trade illuminate your wandering and wondering soul...
I present to you
"The Holy Grail of Trading."
----------------------------------
This morning started out quiet enough. Yes, yesterday was a flat to down day, but nothing big.
The market has reached new all time highs for weeks now, with very little profit taking, so lots of people are on edge.
And today we had our first big down day in a long time.
First there was this: "The slide in the S&P 500 futures apparently correlates with the news of a Chinese military jet that has entered Taiwan's airspace. Whether there is an actual connection is questionable, as similar incidents now happen very often."
And then: "Yellen says rising interest rates are not out of the question."
And what does the day look like?
A 64 ES point drop!
The world is not falling apart; it's just another day in the great world of trading.
So what does this have to do with the Holy Grail?
I am getting there.
Yesterday was a mostly range-bound day with lots of bearish undertones since we closed on or near the low. That made two bear days in a row, which is highly unusual in this fed-fueled "opening up" inflation-driven market.
Because there were two bear days in a row, I decided to try some longs on M2K and MYM.
But they didn't go up. They just sat there really, looking back at me smiling, basically doing nothing.
And so, after just a short amount of time, when I saw they didn't go my way, I hit "Close."
And it is a good thing to, because the market immediately started to drop. My sometimes finely-tuned market sniffer worked well this morning.
Crisis averted!
And then the unexpected happened.
Major Tankage.
And what happened after that?
Maximum Tankage.
But that was still not the end.
For some it must have felt like the whole world was on fire.
And where did we finish the down move?
All the way down around 2,223 on the M2k and around 33,657 on the MYM.
WOW, what a day!
-------------------------
So these are my three losses at the very tip-top of the move you see above.
Yep, -$6 total. With commissions let's say -$9.
But what would the losses have been -- had I foolishly held on -- hoping for a reversal?
What if I continued to think "reversal," hoping and praying to the Lord of the Trade?
What would the damage have been? Beyond BAD.
By getting out of my trades when I did, I averted a potential $620 loss from 3 micros-- if I had been up to my old tricks of not honoring my stops.
By using the 1/10-sized micros, I am not so invested in each trade (married to it) that I can't let it go. I can be disciplined. This is the secret of the micros! By making the trade small enough that I don't care about a small loss, I can let it go when the market says I am wrong.
Each of us has to fight this demon. We have to be disciplined. Many of us struggle for years to not move or eliminate stops all together because we say, "it will come back." Secretly, we believe we are right, and we will prove how right we are by being willing to go down with the sinking ship.
This is crazy stupid! (I have three fingers pointing at myself.)
Hopefully you didn't ride this market all the way to the bottom today, letting it go so hard against you.
But if you did, you are probably not alone. The big boys are going to push and push until stops are run and margin calls are triggered. And if you have no stop at all you are at the total whim of the market. (But there is a solution . . .)
Or maybe you honored your stops on your incorrect long trades this morning, and even got some short-side profits. Congratulations!
------------------
If you haven't figured it out already,
The Holy Grail is . . . DISCIPLINE.
We always talk about discipline as traders,
but discipline doesn't really matter on our entries.
And discipline doesn't really matter if we get out of our winners too soon.
The only time discipline REALLY matters is when we are LOSING.
Because if you are not disciplined when you are losing, you are going to lose BIG. Maybe you will lose $620 on 3 micros like I might have today.
Truly, in trading, the best loser wins. Anybody can be a good winner, but it is how you handle the losses that keeps you alive to trade another day.
We have to get out of bad trades quickly. Today's bear move proved precisely why.
Whether you try to get out of bad trades super-fast like me, or if you let your stops take you out, it really doesn't matter.
Maybe your stops are mental or mechanical. It doesn't really matter.
The only thing that really matters in trading is to for you to be able to
put your ego aside and
admit when you are wrong and
quickly take your losses
so you can trade again
tomorrow.
The Holy Grail is DISCIPLINE.
As the Lord of the Trade said to King Arthur in the video,
It is your sacred task to seek this grail.
That is your purpose . . .
the Quest for the Holy Grail.
So say it with me . . .
"There is no magic indicator. The Holy Grail in trading is Discipline.
My obedience to my own unique set of trading rules
is what will help me succeed as a trader.
Above all else, I commit to always honor my stops.
I will always have a stop, and I will never widen it or delete it.
My rules are like guardrails that keep me from falling off of big cliffs on mountain roads,
so I respect them and thank them for keeping me alive.
I want to be able to come back and trade tomorrow,
so I refuse to foolishly give away all my capital!
I will be a Disciplined Trader today
and each day going forward,
so that I may grow my account consistently
and perhaps achieve true wealth."
(Wow, that was heavy... time for Monty Python again!)
Yesterday was a perfect day for my "The Holy Grail is Discipline" idea. I hope we can all remember to follow our rules at all times, but especially when we are in losing trades. No matter what, honor your stop and survive.
Yesterday's P&L. So I avoided a catastrophe, but did I reverse and make some dough? You bet! I got over $500 using just micros. It was my best day in a long time.
We kept falling yesterday, but once we got down by the daily 20 ema, I thought some bears might want to take some profits, and I was right:
I waited until we got a few last pushes down, and then started to test the "relief rally" idea with some longs.
What I wasn't expecting at all was the speed and distance the bulls traveled. We recovered all 50 ES points of the RTH session bear move, plus another 20 ES points in the ETH session.
These swings are fun to trade, as long as you are on the right side of the market, that is!
So what am I seeing this morning?
(60 min ETH session ES chart)
While the 61.8% fib retracement was broken, my newfangled 66% retracement has HELD (on a closing basis). That could change at any moment, of course. But based on my recent Fibonacci education, the trend is down and the target is the -23.6% fib around 4100.
It could happen, but clearly the bulls have other ideas, and we are STILL in a huge uptrend on the daily chart:
(Daily ES chart, with trendlines drawn from daily opens or closes, not highs or lows)
Momentum in the markets is real, and I am not planning on any major damage to the markets unless/until the lower trendline is broken decisively, around 4050 ES.
-------------------------
Update 8:15 am ET
The bulls continue to push hard. We reached 4179. The "short" Fib retracement idea is invalidated. Yes is could still work, but now that the high end of the strike zone is broken, I am now looking for "longs on a dip." (The strike zone is between the 38.2% and 61.8% fibs.)
This dip should be down into the new strike zone around 4150. See ellipse A:
(60 min ES chart ETH session)
If we get the bulls stepping up again near 4150, the eventual LONG target is the new -23% fib up at B at 4193 or so.
IF the bears are able to push this below the 4143 area (61.8% pullback), then I will start to look for shorts on bounces.
What I have described above with Mr. Fib is "Big Picture" stuff. The fibs have proven themselves to me over an over again now, especially the 50% Half Way Back (HWB) level. Within the big picture context, I am scalping BOTH directions on the smaller charts. There are many, many setups available on the smaller charts. But I now focus on those trades that are in alignment with the bigger picture.
The problem with Mr. Fib is that the anchor points are sometimes challenging. I am still working on it. There are whole books written on fibs, and there are hundreds of algos out there using them. Is it all just one big self-fulfilling prophecy? Probably. But we must be opportunistic traders and must go for the "high probability" moves.
-------------
10:30 ET
The market fell into the strike zone I mentioned earlier. The local low was about 4153, and a slight "front-run" of the 4150 HWB line. And then, the market popped 14 points! This stuff works. Can it get back to the T1 highs and beyond? Who knows...
(20 point range bar ES chart. Fibonacci lines and OBV.)
The thing that is really catching my eye right now is that the OBV is a bit weaker than price. Further selling might yet be in the cards.
------------
11:45 ET
Target one on the fib setup is the high anchor. Did we get there? Pretty dang close! Target two is the -23.60% fib.
------------
2:30 PM ET
The highs may finally be in. 4180 on the ES. T2 was not reached, but T1 was hit! The bulls never cease to amaze! Did I buy on the very pullback at the HWB area that I wrote about? I did not. But I should have.
The bigger narrative is so hard for me to ignore, and that is my personal challenge. The bigger narrative today for me was "That strong down day yesterday deserves more selling." I was wrong in my thinking, 100%. In fact the market got way oversold yesterday.
It is always a challenge for me to ignore my biases, whatever they might be on a given day, and just trade what I see right in front of my eyes.
---------
End of Day.
So despite the big 25+ point drop from the early highs, the bulls pushed this market right back up to make an amazing double top near 4180. Mr. Fib called it again. And then it fell down into the close around 4155 again. What amazing swings. Normally, these kind of swings are distribution patterns for the big boys - in preparation for a huge drop.
But I still don't believe the bears have any teeth. They are gum-smacking grandmas with spinal deformities, hearing aids, and raspy former-smoker voices. They obviously showed up yesterday in force to rattle the grandkids and piss off their parents, but immediately went back into their caves to hibernate again... What gives?
Bottom line: It appears that any correction is still days or weeks away. And the more people (like me) that think we need a correction, the more likely it is go to new all time highs! The bulls will press their advantage, and they just love triggering short-squeeze stop-runs to the upside. I just have to be careful with the downside!
In fact, I should have 100% courage to try BOTH directions in the 4120 to 4175 huge range we have been in for almost one entire month. We are near the top of the range right now, so you know what I am thinking... But I won't overstay my welcome on any shorts.
I just noticed that we have what appears to be a head and shoulders pattern forming on the daily chart, with the head 9 days removed from the left shoulder. We have 5 more days therefore to get to a comparable right shoulder -- if it is going to happen.
P&L: I lost about $100 today, but am up overall on the week. That is what really counts.
The contest ends tomorrow. But I will write again next week.
A friend of mine says my "book" has now been started, LOL. Whether or not this be the case, I am glad that my comments have been well received.
When I began to write a month ago, I decided to be clear and candid. Maybe I have been a bit too candid . . . But having struggled for SO MANY YEARS myself, I didn't see another way to expose the pitfalls of trading, which, of course, really center around psychological issues, not technical.
Truly, I have been a scatter-brained emotional trader for many years, but have been doing much better the last two. And I really believe that just one or two good trading nuggets can help someone across the huge gulf of despair and over to "profitability."
So I write and share, (a) helping myself to wade through the barrage of trading data and bring home some green most days, and (b) hopefully helping someone else shorten their learning curve.
I am glad you are along for the ride.
---------------
Another heavy topic... (that's two in one week!)
It's okay to walk away...
This may seem like an odd thing to say in my concluding contest post, but I am going to say it anyway: This is a HARD business. Despite all the claims of magic indicators, there is no easy way to do this!
It has taken me about 15 years to be consistently profitable as a discretionary futures day-trader. Your time may vary. Maybe you can do it in 5. Maybe 2. Or maybe it will take you 10 or even 20.
Or maybe you will be just part of the 90% who lose all their money in the first year and stop trading for good. There is no shame in stopping.
Maybe this is the only time in life that it's okay to quit. If things are not working well for you, and you just don't have to time to dedicate hundreds or thousands of hours of screen time to the task, then consider walking away now. Your family, your employer, and your own self will thank you - because you will have a life.
In trading, you are going up against some of the smartest people in the world (and some have egos to match!). Don't be angry if they beat you - over and over again. They have learned some great skills and often have incredible firepower behind them, and they can - and do - intentionally move the markets. They are not trading in 10's of contracts, but in the 100's of contracts, simply overwhelming the rest of us.
If someone (not on FIO) asks me if they should become a trader, I will tell them "No." It is too painful and poverty-inducing. The time it takes to reprogram your natural responses to fear and greed is astronomical. You become a stress-case and are less friendly and caring. Human beings should be friendly and caring!
All-in-all, I don't wish the "becoming a profitable trader" process on anyone.
So if YOU have any doubts or time constraints, then don't be ashamed to quit.
You have to be 100% committed to this in order to make it work. And you have to recognize that it may take a long time to get consistent.
Still here?
Am I trying to talk you out of trading?
No.
I just want you to know the cost. Because there is one. And it is big.
Hi @sstheo, this is in response to your report of missing images in this post.
There is a known bug that sometimes affects images when a fairly long period elapses between the time they are imported into the post and the time when the post is saved. We haven't seen this is a while, and it is being worked on now that it has arisen again.
In the meantime, as a practical matter I suggest the following:
When you have a long post that will have images, simply get the text typed in and finalized before you import the images, leaving a space in the text where they will go when you are done. When you are done with your text, then import your images where you want them to go and when done, save the post. If you look over what you have saved and decide it needs some more work, do it as an edit, including any additional images. Just don't leave a long period of time between importing the image and saving the post, in ether case.
How long is "long?" I have seen what I thought were fairly short periods be too long. So get them in at the end of your composition period if you can, following this procedure.
We're adjusting a few parameters to see what will affect this issue, but testing it is obviously a bit hard to do, and it may be a while before we are sure we have it.
In the meantime, just remember to import the images to a longish post once you are close to the point where you will save, and you should do OK.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Since this was my favorite post of the whole journal, and the text specifically refers to images, can you enable the "Edit" button again so I can try to fix the post? Thanks.
Sorry to be late getting back to you, but I had to check with Mike to be sure about what we could do.
We can't do it on a case-by case basis because it's system-wide. One individual button in one post cannot be changed, sorry.
If you like we can delete the post for you, if you don't want it to stand as-is, but that's it (I assume you don't want this, but I wanted to ask.)
Alternatively, you could copy the existing post by clicking the normal Quote button and then edit out the opening and closing Quote tags (at the beginning and end of the quoted message, set of by square brackets), and then you have all your text which you can now edit. Then you simply Submit Reply, like you do any post. (I would remove and re-insert the images that did come through in your original post, just in case.) Then we could delete the old post, and you would be set.
Let me know if this is clear to you and if you want to do this.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
And even though the highs of the day are usually made during the RTH session, today it was just not meant to be; today we had a huge down day that didn't even really retest the ONH's.
And the waterfall was not finished with the usual bottom-fishing - which gives us a bounce of at least 25% as of late.
We are still above the daily 20 EMA, and still far above the uptrend line, so no big bears around in my opinion.
This being said, today felt different. Maybe even a bit ominous.
Let's see what happens tomorrow.
I did okay today on some shorts and some longs:
After commissions, it was about $140.
Here is the interesting moment of the day for me:
Notice at point A that the 20 EMA was UP, and it looked like the low of the day had been formed around 4191. It certainly looked like a bottom was being formed.
Indeed, the market rose close to 4200 FOUR times, and then broke it by 8 ticks to 4202 at Point A, and then BAM! down it went for 30 ticks.
We must always be careful, always be prepared, and never too shocked.
Notice that in this case to push down to 4192 had already broken below the 4200 big line. So without a subsequent convincing break to the upside, we were really still in a downtrend where previous Support at 4200 had became pretty strong Resistance.
