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This chart shows the bottom of Yesterday's profile and Today's as it's building. While I'm typing this the market is dropping like a stone. The time is 9:35 am eastern.
I could see US traders BUYING the VWAP at 1.2558 and taking another shot at that pivot (1.2605) if they do, and succeed with high enthusiasm, the market might just travel up to that 1.2616 level. You know I like that area 16 points above and below whole numbers. But, I'm not going to join the party, I'm done.
@eminitrdr thanks for your comments, I was wondering what PBZ signifies on your chart, at 1.2534?
Any thing can happen, I think those words carry a lot of fear and greed for most traders. In my trading, I've found nothing more demoralizing than watching a nice profit evaporate away at the speed of electrons. When it happens to me, I want it back! But be warned, my experience has proven to me if I play that game I'll lose. I leave tons of money on the table, I consider it leaving "meat on the bone" for tomorrow. When I enter a trade I know where I'm getting out if the market goes North or South, I also know when I'm getting out if the market goes East. My entries and exits are often at the market's extremes, leaving me vulnerable to taking profits at price levels that get blasted through and often left behind! It's my choice, and mine alone to enter and exit the market. When I exit a trade, It's "game over" what the market does NEXT is no concern of mine. If my analysis was correct and I got filled at my predefined targets I have to remember how hard it is to consistently make money trading. Leaving the "unknown" money on the table after exiting a trade is just a fact of trading. Taking the "unknown" profit between my entry and predefined exit is my only job.
Standing In Front of a Train!
I often think of my trading as standing in front of a train. Many times after a pause or prolonged price rotation at or near my profit target the market continues on in the favorable direction. The take away of this post is, "Honor Yourself and Your Analysis," when you leave money on the table. Remember, Anything can Happen.
This morning I was late to the party. When I did open my software this first chart shows what I was looking at. Again the market was below the Value Area of Yesterday's VP. I also noticed Yesterday's low held the market up twice during the this session. The second chart shows prices ranging around between the +2 of the European session's VWAP, yesterday's low and within the VA. Since this market is also trading above and below the 1.2550 level I'm expecting to see prolonged price rotation 16 ticks above and 16 ticks below that whole number (1.2550). I wait.
The market returned to the low of yesterday and traded on the -2 SD level. I noticed several areas of interest here. One, is what I call "the rule of three," during a consolidation I like to see three attempts at breaking a support or resistance level, there is some "gray area" here (that's trading) but I'm calling this the third attempt. I put the VWAP levels on the Globex chart for comparison. As more volume comes to the market during the European session these values will often align themselves within a few ticks (same for US session). Lastly, as I mentioned in my post yesterday, I'm looking at the "face" of the VP on both charts. They're flat enough for me and I enter orders to buy near the low of yesterday, -2 SD level and under today's VA and target the upper VA, +2 SD level and a POC shift. One other note: During the European session between 3 and 4:30 am eastern I've highlighted an area (yellow circle) around 1.2550. When I see areas like this I think of them as a Double Whopper with Cheese and Biggie Fries stuck in my lower colon! If this test of the low fails and price forces it's way UP through this area follow through will carry prices higher and faster than normal price rotation. All things considered, it's the face of the VP that makes this trade most attractive to me.
We all know what happened, but I wanted to post the current chart for two reasons. First my target was filled that's a good thing. But I also had other targets above this area that I had my eye on when placing this trade, they're in the previous post. Some times trades work out, sometimes they don't. Sometimes prices stop dead at certain levels and the next time they slice right through like they weren't even there. I'm a firm believer that Anything Can Happen. I've found for my own trading set profit targets work best for me. I did have to come to terms with leaving money on the table, but I also had to learn to honor my analysis. Standing in front of a train is like the fella in the old westerns standing on the caboose with a hook in his hand snatching a mail bag off a post at the train station. It isn't that hard to come to terms with leaving money on the table, when the mail bag is full of money.
Bonus Trade
Sorry fellas, it happened again! While I was writing this post the train passed by.
I confess, I cherry picked this example of what I call a Flat Face trade. The trade date was May 30, 2012 and it was the June 6E contract. I wanted to use this example for several reasons but mostly because I was posting the trade on nexusfi.com (formerly BMT) that morning as the trade unfolded. I'm posting both the Globex VP/VWAP chart and the European VP/VWAP chart. Take notice how the two merge, and yet remain different throughout the session. As always, IMO, posting trades using these studies takes a lot of charts (and time) to really get a feel for the price action and the decision making process that happens as these trades unfolded in the past. I hope this historic representation alerts traders new to VP the significance of and the amount of caution I use when placing trades around this pattern ("flat face") of the Volume Profile.
These first two charts show price trading under the VWAP and rotating within a range 16 ticks above and below the whole number 1.2450 for more than 3 hours. During this time the POC shift down to 1.2465 on the EU chart brought both the POCs within a few ticks of each other. As price continued to rotate around 1.2450 another POC shift of both VPs aligned themselves at 1.2453. As price continues to trade under the VWAP I entered orders to go short from just above the -2 SD and placed a stop above the POC, above 1.2450 and on the falling VWAP at 1.2455. In fact I felt so confident about this short I entered another sell order at 1.2450. I was quickly filled at 1.2445 and shown some profit on the trade.
The market traded above my entry and above the -1 SD level for a while but continued to trade lower, matching the most recent low but failing to make distance below the -2 SD level. With the failed new low on this move DOWN from 1.2452 which filled my sell order at 1.2550 I begin to believe I'm early on this short position, I expected this move down to break the previous low and continue on to fill my target.
This is the time to notice the shape of the faces of these volume profiles. Notice how they have slowly filled in and formed an almost vertical face. As I've said before, when I see a VP with a flat face this alerts me to the fact there is NO RESISTANCE to stop or slow a move in either direction. Another consideration I have when I see this VP pattern is the speed of the move if a complete retrace of the face (Value Area) occurs, most often it happens very quickly and in one direction only.
I closed out this entire trade at 1.2440 when the previous low held prices up and the market traded above the -2 SD level.
After I closed out my entire position, the market traded back up to my average entry price and then straight down to my target. I've often wondered if I would have gotten a complete fill on 1.2425. I guess my fears about a total value area retrace were wrong and unfounded.
Or maybe not, the second chart in this section is a one minute chart. The speed of today's markets can make a hero a zero in the blink of an eye. I suggest to always limit your risk on every trade and always have working hard stops, somewhere in the market.
Yesterday (Monday session) at 2am I came out swinging with long trades looking for another attempt at pushing the market into the lower value area of the Friday session and a continuation up to the POC shift at 1.2547 and 1.2554. And maybe if volume entered the market, a run to the day's Pivot at 1.2565. I averaged in my 4 contracts quickly at 1.2535, I was willing to target and start taking profits at 1.2555 one tick above the POC. The market traded at the LVA a few times and then dropped through Friday's low which began triggering my hard stops. I was down five hundred dollars right out of the gate. The market began to consolidate around 1.2514 and my view of the market hadn't changed, I took another swing at an up move with a 2 lot. Needless to say, that trade also failed, now I'm 0 for 2 with my longs and I'm down seven hundred and fifty dollars. Forgive me for not "snipping" a view of these losing trades, but I just wasn't thinking about that OR this post at the time.
I started thinking of my experience yesterday and thought I'd post some thoughts. I believe when I take away all the hyperbole, all my trading decisions are based on my belief of the markets future direction. I may base my belief on several indicators, anything from a moving average to a feeling in my gut. The point is, this belief is mine, and the decision to enter or exit the market is also mine. I'm no different than any other trader, I have a free will to devise any theory of the future direction of price. Trading (for me) for the most part is a lonely business, just me and my chart. I don't have a jury of mathematicians and fundamentalists to write me an opinion to review before I enter my trades.
Since most all traders have a free will to enter trades long or short in rising or falling markets, it would be safe to assume that most traders have losing trades during their trading careers. The point I want to make here is, losing is part of winning and I had to prepare myself for losing trades. I needed to prepare myself financially and emotionally for losses. I've found if I limit my financial losses at an emotionally acceptable level I'm much more "available" emotionally to continue trading for the remainder of the trading session. I trade within strict limitations, there is no gray area here. I limit the amount of capital I put at risk on every trade. I also limit the amount of capital I'm willing to lose for the day. If I don't adhere to the "per trade" limits I've set for myself the daily loss limit rises dramatically and this exaggerated amount of loss may prevent me from retaining enough residual capital within my predefined limit to continue trading for the day and recoup some or all of the previously lost capital.
Obviously this amount of capital at risk is dependent on the size of a trader's account, but I strongly believe most new traders are extremely undercapitalized. When I began to understand risk I began to make consistent profits. For me having enough money in my account to weather the intraday drawdowns that inevitably occur, allowed me to retain a relaxed emotional state that I needed to keep my head in the game and continue to trade the market, and not, trade the money. I believe RISK is a personal journey, but I also believe there're shortcuts. One issue is position size, I suggest identifying yourself as a (N) lot trader. I'm a four lot trader, this means I never trade more than four contracts, often I trade less. If I risk 1% on every trade this means I never risk more than 1% of my trading account on a four lot position. If my daily loss limit is 2% this means I can only take two consecutive losing trades of four lots each if they turn into losers and stop out at their full stop. This method allows me plenty of wiggle room when I'm trading LESS than four lots, it also enforces strict risk limits when I do trade four. I believe (for me anyway) it's almost impossible to become completely comfortable with risk when the size of the positions traded are "all over the map." For me consistency is key, I believe consistently trading the same lot size day after day was a significant shortcut in both smart risk management and in sizing up positions as I developed my analytical and trading skills. Lastly, as I said before, there's no "gray area" when it comes to risk. I had to identify my emotional comfort zone as it related to the amount of capital I was willing to place at risk and define my own risk level, then I had to define my own rules to keep me within that level both financially and emotionally.
Using the guidelines set forth above I was able to settle in and remain focused on trading the market, and not, trading the money. Was I oblivious to the fact I was down $750.00, HELL NO. But I do know emotional trading (trying to make it back) is usually a one way ticket to self destruction. Another emotional mind game traders often play is trading themselves back to breakeven and then reveling in the fact, "I got out at even." Some days and depending on the time of day I can agree with this attitude, but I'm here to make money. If you haven't guessed by now I suggest, getting absolutely comfortable with the risk involved on every trade, this in turn will allow you to "keep your wits about yourself" and focus on trading the methodology you've designed for yourself if you're ever run over by the market. Within an hour I was down $750.00 within three hours I was up $750.00. You gotta love it.
IMO, to win at this game I had to get absolutely comfortable, playing on the tracks
Writing these posts is paying real well. Here's an example of standing in front of a train, I bought the Buy Number,, sold it,, and got off the tracks!
Great post, and thanks for discussing risk. So I take it you do not advocate trading a smaller size when experiencing a drawdown? Also with respect to risk: do you open a position with a 1 or 2 lot, and then seek to add? From what I see you usually go for 20 to 30 euro pips, so not much opportunity to add there. In other words, would you ever go all in at 4 lots?
Just SIM trading. Still working on entries, exits, trade management, patience, and discipline.
Just trying to learn all I can. I spend many hours each day observing charts and mainly price action. Striving to get on the path of consistent profitability.
@josh I can never sneak anything by you! Thanks for that, I've said before your posts simulate worthy thought and contemplation (in me anyway). I intentionally left those "stones unturned" in an attempt to shorten the post. But since you so kindly asked (and I have time) I'll post a few of my thoughts around these subjects as well. I'm not sure how to put all this into words but I'll take a big swing at it.
Consistently Random
I suggest identifying yourself as a (N) lot trader. I'm a four lot trader, this means I never trade more than four contracts, often I trade less. Rarely do I ever go "all in" when entering a position. My style/method of trading looks a lot like top or bottom picking when viewed on a captured chart. As I've posted previously I look at several charts to enter even the simplest position. I mostly enter and exit trades off price levels generated by the studies on my charts, often these levels are on a different chart than the one I post. Most all my orders for entries and exits are limit orders. I believe the shorter the time frame I trade the closer I am to market noise and this noise can often be used in my favor by not going all in when entering or exiting positions. Another factor I consider when entering positions is not all trades workout due to a random distribution between wins and losses. This randomness can be viewed as a double edged sword, if I want to enter a short position @ 1.2488 and get in this market and my analysis suggests if the market trades above 1.2498 I don't want to be short (hard stop) this gives me 10 ticks of "wiggle room" to add to or average up my short position by a few ticks (sometimes several) and at the same time control my risk on the original entry @ 1.2488 and lessen the risk of every subsequent short entered within the 10 tick wiggle area, but remember, I continue to maintain the original hard stop at 1.2498 and I stop adding positions when I reach my four lot limit, then I have to let the market decide if my analysis of the future market direction was correct. My theory is, if I go all in at 1.2488 with my 4 lots I'm locked into this trade with $500 at risk. If I average in 4 contracts as in this example (1.2490 ave price), I'm still short 4 lots but my total risk is now $400. If this trade fails due to the random distribution between wins and losses I salvage $100 of my trading capital. On the other hand, if my analysis is correct, and my target didn't move up against my position, I gain that $100 in profit on the winning trade.
I believe in the random distribution between wins and losses, this alone is why I don't trade smaller during a drawdown. To qualify this statement I will say I have a very high win loss percentage and using the entry method explained above I rarely find myself restricted from trading my maximum four contracts if given the opportunity by the market. I'm happy as hell trading two lots and I don't always get the opportunity to average in the third or fourth contract, but I believe randomness exists in all aspects of the market including entries and exits.
Also while I'm this close to the subject I'll comment on trailing a stop. I believe the shorter the time frame I trade the less need there is for trailing a stop. It helps if we could agree that market noise is dependent of the time frame a trader is trading. A trader trading a 4 hour chart might believe 50 ticks is noise, someone trading a 15 minute chart might say 20 ticks is noise. If I'm trading off a 5 or 10 minute chart and using a 1 minute chart to satisfy my curiosity about my analysis I have to admit I'm playing in some serious noise. Also given the fact of the speed of the market moves these days trailing a stop (for me) in these time frames can not be justified. I do however live and die by always having a hard stop in the market that I rarely move.
But, I'm not going to join the party, I'm done. 
When I did open my software this first chart shows what I was looking at. Again the market was below the 
I guess my fears about a total value area retrace were wrong and unfounded. 
