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Thank you for the question @Rrrracer . My knee-jerk quick answer to this is "well, what I was looking for in a 'sign of weakness' was basically any excuse to wait and not enter so that I could botch and miss this trade." That's a little unproductive though, so let me work my way through this one start to finish, and maybe we can get into the potential logical fallacy of it.
So here in the below image I've kind of summed up the high level thought process I had from a context perspective and why I was thinking we might have another downward push coming after the open. Previous day was a all selling until the very end of the day, when a bounce occurred and continued until the UK session. In the UK overnight there was a failure to find more buyers over .87, a lower high, followed by a downward push into what I had drawn out as higher time frame support zone around 47.50. So my basic hypothesis, until proven otherwise, is that this market wants to try and challenge that .50 level again. I don't really know or particularly care how strong the selling will be once it hits .50. My main concern is getting a good entry short, and timing it with the market open (not before, too volatile heading into it), and searching for this mythical "sign of weakness" to hopefully limit the chance of getting blown over in a squeeze.
Now let's dive a little deeper. I've already decided I want to get short. Why not just get short? Well, good question, it's not straightforward. I could. Maybe I should. Pre open we're waffling at around .66, we're nicely positioned under the prior low, I could put a stop maybe 20 ticks away. That's a little far though. I don't want to take that hit, so I say I'll wait. And like any good technician I start drawing some meaningless lines and looking for symmetry. I see VWAP there and I say, hey, VWAP often attracts price and acts as a decision area. And it's nice and symmetrically located for a little pull back. And I have the open coming up which should have some volatility in it and all that adds up to a likely push to VWAP. Let's go ahead and wait for that. I'm of course concerned that I'm going to miss it completely (orange arrow), but I have to make that bargain. So there I go.
And now I lie in wait, looking for price to hit VWAP around .73. But I add one more layer. The "sign of weakness" that will act as my entry trigger. Because I'm afraid of price blowing through VWAP (market just opened, right? Could be crazy stuff going down), I don't just put in a limit order at VWAP and wait for the market to hit me. Instead, I wait and see. So what am I looking for?
Well, the short and sweet answer, albeit simplistic and perhaps unsatisfying, is that I'm just looking for price to not blow right through .73. That's it. A pause. At it's root, that's the bare minimum to allay my fears of getting blasted with a bad entry. But the fact is, I decide to throw in some other voodoo that may be completely meaningless. I'm looking for price to not only test .73 and fail, but then I'm looking for yhe action to "look weak" after it does that, whatever that means. So price touches .75 and dips back down to .73. Is it rushing up back to .75 and holding between .74 and .75, looking like it's about to break higher because the buying pressure is holding VWAP strong? Or does it run down to .69, limp its way back to .73, pause again (where I have my limit now being placed and ideally getting just barely filled), and then dip back down.
I look at other things too. Bar speed on my volume chart is indicated by the color (red are exceptionally fast bars = lots of volume very fast, blue are the opposite). Always experimenting with reading new kinds of data. I don't know much about order flow and never show charts with it here. But as a curiosity, here's what the "climax" at .75 looked like, and maybe another "sign of weakness" could be seen in here.
Basically the "sign of weakness" can be any excuse that works you through the fear and into the trade. But it comes back to a classic price / information quandary. You can't have cake AND ice cream. You usually have to pick one. In this case, I tried to get both and instead I came away with nothing. I continue to ponder and explore the notion that looking for confirmation in this way is more of a crutch, a sign of being a weak hand in the market, than it is a tool for making money. I believe there is no black/white answer, and it is a balance has to vary case by case.
Wow thank you very much for the succinct and in-depth response. It's amazing to understand what is going through other traders' heads. You really have a knack for encapsulating your thought processes in all of your posts, it's supremely helpful.
I keep thinking about how Inletcap, FT71 and others eschew confirmation and just trade their thesis. The trade is right there, you just have to believe in yourself and your process and the rest falls in to place. Easy for them to say right?! LOL.
Building the confidence to actually do it is another thing, but it sure seems like you're on the right path my man. I sincerely appreciate you taking the time to help me and others understand.
Been slammed at work and not getting much rest. Couldn't trade yesterday, but decided to try to get out of bed for the session today. Missing the pre-market but prepping now for the open.
CL broke below its 47 - 48.50 range and buyers are struggling to pick it back up. Bounced overnight and now waffling within the bottom half of yesterday's range. 46.75 - 46.95 is nearest major resistance. 46.06 - 46.20 is nearest support. With room to continue lower, the easiest move for now is to lean short. We'll see if the higher low bounce off 46.50 can hold though - if it can, a further bounce to test 47 is likely.
The current bounce looks slow and weak. Given the context I'll be on the look out for a change-in-direction entery to the short side anywhere south of 46.75 ideally.
Similar to last Friday. I was right about leaning short. I was trying to work my way up to an entry in the first minutes, but didn't make it happen. Need more practice. Not too concerned with the miss today because I feel I'm on the right track and am pushing through some serious overhead with work obligations running me a little ragid. Over the weekend I replayed and made some good progress trading with a higher frequency. But practicing on a saturday afternoon with a beer is different from doing it live at 5am on a workday. I did get a little pullback entry later in the move for +7.
Again missing the pre-market this morning. Waking up later than I should, but getting the sleep I need. A fair trade for the time being.
The slide continues. 45.50 held and bounced very hard after hours yesterday. 46 is holding in the early morning here. Buyers have some hope here to push for 46.50 and beyond. Otherwise, next stop 45 even.
Kind of a mixed bag today. The one thing that seems clear is if we drop much below 46, look out below. But the strength of that bounce off 45.50 and the hold over 46 has buyers looking pretty strong. That combined with the prolonged downslide since August 24 has me leaving longs on the table even heading up into resistance here. We'll see.
In trading you don't have to be perfect to make money. But you can't be bad at any one thing. You have to be pretty decent at all of the things. My first trade is a good example of the fine line between loss and profit. -4
How did you break your stop management rules on your first trade? And if you can find time in the future, would you offer some insight why you choose to use a 5000/1000 tick chart? Thanks.
Important to remember we are still in a down trend. Yesterday's up move with a nice hold of support overnight does look strong.
Been painting a range between 46.60 and 47.30 overnight. I'm not picking a side. In wait and see mode. Buyers would really like to keep this market within last week's range (LW_Low at 47.06) and get it over yesterday's high (47.47).
My portion of the day was unfortunately pretty choppy and range bound. I could have traded it better by taking trend reversal entries rather than trend continuation. Came away with -4 ticks.
A few takeaways from this scratch week. -1 overall on 2 winners, 3 losers.
1. Practice over the weekend is helpful, but new techniques will still take time to work into live trading during the week. Repeat the process. Practice / Perform, Practice / Perform, until the performance starts to look indistinguishable from the practice.
2. To trade on these tight timeframes one must be nearly 100% attentive to the chart, even if it isn't doing anything interesting. I had several good ideas that I missed because I was not fully engaged with the action at the moment that I needed to be.
3. Start thinking about what type of environment does it make sense to switch gears to trend-reversal trades rather than trend-continuation trades. Today being a good example.
4. When you execute a trade idea, be aware of the timeframe that generated that idea, and manage the trade primarily on that timeframe. This is about target selection and stop placement, and the movement of stops / decision to exit. To put it more simply - Don't take an idea based on a higher timeframe, and then manage the stop on a lower time frame. A scalp is a scalp, a swing is a swing. A 20-tick target trade should not be managed like a 6 tick target. More on this in next post.
Thanks again for the questions. These two questions are actually related. My market analysis is based heavily on the study of higher high / higher low and lower high / lower low patterns. The market is fractal in nature so these patterns tend to layer within themselves as you go from longer to shorter time frames. There are four primary charts that I use to build my picture, each geared toward a different duration of market activity.
Daily =Multi-month view (use this for very long term levels)
120-Minute = Multi-week view (use this for medium / long term levels and trend structure)
5000-vol = 24 to 48 hour view (for CL) (use this for short term levels and bigger trade ideas)
1000-vol = 8 hour view (for CL) (use this for ultrashort term levels and smaller trade ideas)
There's nothing magical about the 5000 / 1000 volume bars, but on CL they roughly equate to a 15-minute chart and a 3-minute chart, which is about right for my needs. I have grown accustomed to Volume Charts because it gives me a sense of the pace and participation in the market without having to look at a separate volume indicator. I can just look at how fast the bars are finishing.
You caught me using the word "rule" so I owe you an explanation. You don't have to go very far back in my journal to see a very wide array of different stop management strategies, so "rule" is a very flexible term. Perhaps this would be better called the "flavor of the month." But here's where I'm at now:
As noted above, I generate ideas on the 5000-volume chart as well as on the 1000-volume chart. Although I almost always reference the 1000-volume chart for execution, the R/R may have been established using levels from the 5000-volume chart. These are my favorite kinds of trades because if they are right then they can often be the start of a larger move. At some point I hope to be good enough to take more meat off of those trades. My "rule" is basically this: Trades - especially stops - should be managed primarily on the time frame that originated the idea. The valid reasons to move a stop are primarily higher lows or lower highs. Not a desire to mitigate losses or lock in profits.
Here's the trade from August 31. The idea was based on the notion that the open was going to hold for a move higher and that the prior resistance at .25 had now turned into support. I have circled my entry bar, filled at .33. I have put a line where I put my stop initially. A sensible place. Below obvious support. Below the recent lows on the 5000-volume chart. Below "round" .25. A 9 tick stop.
As the trade matured and started to move my way, a sensible place to tighten the stop to would be below the lows of the base that formed during that entry candle on the 5000 volume. Maybe .27. A 6 tick stop.
Instead, I started looking at higher lows on the 1000-volume chart. Not the chart that really formed the basis of this idea. I was going for a 20 tick target but managing it like a scalp. I put my stop below a little higher low (circled below) and got shaken out. That higher low did not exist on the 5000 volume chart.
Getting shaken out is inevitable. It has to happen. But there are some sensible approaches to give your trades the right amount of room most of the time. Balance that with attainable targets, varied according to the type of trade and market, and somewhere in there you can find the sweet spot.
Thanks FM, hope you had some fun time off this weekend :-)
Even though I only sim at this point (and rarely at that), I feel like my style (if I have one) is primarily discretionary, and I think I get what you were thinking.
So trade execution on the 5K chart, but you moved your stop based on the 1K chart which bounced you out, but would not have had you kept your management level on the 5K chart, treating more as a swing versus a scalp. You switched gears and tried to micro-manage the trade? It obviously eventually went your way, which has to be somewhat maddening after the fact LOL. Crazy psychology stuff, I can see why. Your original stop (and thesis) was valid, the trade just needed a little more breathing room to work.
Not like I have any room to talk LOL. Going live for me seems so far away, I really just need an instrument to trade that will have enough liquidity to do something with while maintaining a minimum of risk and exposure, so that I may stay in the game as long as possible to learn these types of lessons. Still looking.
How do you feel you rebound after a trade like that? Take it personally/shrug it off? What's your though process going into the next trade, if I may ask?
It's happened to me enough times that now I let it go pretty easily. I used to get pretty angsty / emo about these kinds of mistakes. This would usually be a general frustration, coming from a place of "I can't do this trading thing" "Maybe I'm just not cut out for this" "Why can't I get this right" line of thinking. I believe a certain amount of anger / irritation is both natural and actually helpful, but it should be directed more precisely than that. Try to recognize the specific thing you did wrong and note it down. Try not to do it again. Then, acknowledge that you probably will do it again, but if you're on the right track you'll do less of it, and less of it. I mark in my spreadsheet when I have a "shakeout." It does happen less than it used to. I also started track something I call the "next 10 ticks" metric. It's a simple thing that lets me look back and see what the market did immediately after I exited. If I keep getting stopped out right before the market moves 10 ticks in my favor, I'll have that information across a lot of trades. This helps me put things in perspective. One shakeout is no big deal if your other trades are working OK.
If you're on the lookout for something to cut your teeth on without undue risk, I hear forex micro lots is a great place to start. I strongly recommend it to any one willing to listen. It doesn't have some of the benefits of regulated futures, but it allows you to trade real money with a lot smaller account size. I never did it myself, but honestly wish I had. I think I would have progressed much faster. I've always treated my trading fairly conservatively and never risked more than I could afford to lose - but that doesn't mean I was always comfortable with putting hundreds of dollars on the line every day, and in the first year watching it evaporate fairly quickly. I think I would have traded better, and learned a lot faster, if I had less money at risk per trade in those early days. Comfort is a key component of confidence. And confidence is key.
The market opened up the week with a show of strength, pushing up to 48. This looks like a neat measured extension from the Friday lows. If I were to wager I'd say the trip up from to 48.50 and 49 does not happen immediately. Market is more likely to spend today consolidating, a shallow retracement lower to 47.75 or a more serious retest of 47.50.
Will see when the market opens what happens with this overnight channel.
Market decided to bull higher. No trades for me today. Almost took a long in there, but almost doesn't count for anything. Still, I think a former version of myself might have gotten steamrolled by several failed short entries. Obviously I know I can do better than this, but putting it in perspective, could have been worse.
Crude Oil Inventories report comes out Thursday this week. So I'll plan on trading tomorrow.
