Finding Your Market - Honing Your Craft

Today I'm putting up a guest post by FuturesTrader71 (www.futurestrader71.com).

He answered a question over at BigMike's regarding finding the right market for you.  I've seen this question answered a few dozen times, but I thought that this was one of the best.  The gist of it is that there are certain factors in choosing a market that you need to fit to your personality and trading style, BUT you really need to find something and stick with it - master it.  Learn everything about it, and really get in tune with it.

Quoting his answer here:

"Product selection has many dimensions including account size, liquidity, trading hours for the underlying products, risk tolerance, tick size, fees/commissions as a ratio to range value, market conditions, etc. A whole lot depends on your temperament; are you ok sitting in something like the 10-yr notes where it might not move from the bid/offer prices you entered at for 15 minutes? Do you prefer the zip and power of the FDAX? Can your account afford the margin? Can you afford a $780 per contract move in the FDAX on a news in 12 seconds? 

I would only suggest a different time frame or instrument as a last resort really. The idea in trading, in my opinion, is not to treat the market like a casino where you can play Blackjack and then switch to nickle slots then quarter slots and then roulette or craps for entertainment and action. The market is more like the selection of a skilled craft to pursue. If you are going to be a master cabinet maker, then you wouldn't be advised to be a plummer just because your plummer friend is busy for 6 months and is making money. 

In my opinion, it is best to get REALLY, REALLY good at whatever you choose. What I see the most of is folks who dabble and spend a bunch of money to learn and then lose a bit. Then they dabble some more somewhere else. Then they fall for a promise of great returns and dabble again because some guy is doing a free trial of his chat room.  

This business is about committing a lot of energy for a one-pointed effort to master something specific. I believe that your ability to compete in this effort is based on having a structured approach, good record keeping and iron-clad risk management. This is what I'm focused on creating for traders now through the brokerage and new education material. 

Look at it this way, you wouldn't be paid highly as a surgeon if you repair tires full time on the weekend for income. You get paid highly because you have committed to the craft of being a surgeon and are better and more dedicated at it than others. 

Wouldn't you agree?"

As a matter of fact I would.


Happy Trading,

-IT7

Help me find the pattern?

Hey guys, 

I'm trying to find a pattern in CL (crude oil) price action over the past six trading days from 11:30CST until pit close at 13:30CST..... 

I could really use a sharp eye to help me see if there is any similarities... 

I've highlighted the time of day with a rectangle on each day's chart...


March 4th:

March 5th:

March 6th:

March 7th:

March 8th:

...and....Today...March 11th:

Interesting huh?

We'll see if the very act of noticing it causes it to vanish tomorrow!  I can guarantee you one thing, if I'm long heading into this timeframe (or during it) tomorrow, you can bet I won't be taking quick profit targets.

3D Trading

I've been a fan of three-dimensional trading for quite some time.  3D trading involves using three different timeframes such as the combination of 30min, 5min, and 1min charts.

There's a few ways to do it to suit your own style, but since I'm a Price Action guy... I'll show you how I do it.

I take a top down approach.  Start with the longest time frame.

Long term chart - 30 minute chart

This is the chart I use to look for significant levels in price.  It shows the history of the battles between bulls and bears.  It shows emotional inflection points where more people are likely involved.  Regardless of what the reason behind it may be, it shows support and resistance levels that I care about.

Here we can see CL action from today.  We'll make an example of what price did as it entered the support level that price had reacted to four times prevously (blue boxes).

Now we go to our main trading timeframe, the 5min chart.  

We're looking to see what price does as it enters this support level.  We can see that, on this timeframe, price forms a three-bar stall at the level.  There are also some longer wicks to the downside, which generally signal strong buying stepping in.  OK, we found a significant level on the higher timeframe, and we've confirmed that we're getting a stall here on our trading timeframe.  Let's look to the lower timeframe to get a microscopic view of the price action.

We're now viewing the lower timeframe (1 minute chart here). 

We first have a strong push down into and slightly past the level.  Buyers step in and price isn't able to maintain below.  The bears step in and again, and we get to see what they've got.  As you can see from the arrows, the second push down was super weak relative to the first, and price again came back up above the level.  You can choose an exact entry however you like; the precise entry is not even close to the most important thing when you get the analysis right.

Emotional Cycle - 7 phases

The seven phases of my trading:

1. (Day 1) I've got a great method of trading, let's be patient, focus on having a probabilities mindset, take these setups, and manage risk.

2. (Two days later) I am having good success with this.

3.  (7 days later) I am really on fire, I have been profitable for 9 sessions in a row.

4. (Next day) A breakeven day or two, I'll do better next session. Risk management is getting a bit inconsistent.

5. (Two days later) Daily loss limit hit, man, that sucked, I'll do better tomorrow.  This is only a temporary setback.

6. (Next day) Daily loss limit hit again, wow, what am I doing?  I've got to re-think this thing.  I've got to question my setups, question my analysis, question my exits, question the market I am trading, question the timeframe I am trading, etc.

7. (A day or two) Spend hours and hours and hours pouring through charts, trying to find the answers to prevent the losing sessions I have.  Find "the answer".

1. (Start at day 1) I've found it, I now have a great method of trading, let's be patient and take these setups, and manage risk properly.

------------

The truth is...the bottom line is that.... all of this is too emotional.

I need to focus more on simply executing my edge, which is in fact an edge... IF I execute the risk management methods that go along with it.  You see... even as I say that, I am admitting that there is a difference in my mind between my "edge" (hear setups) and "risk management" (hear exits).  There is no edge without both in place.

I must continually focus on keeping a probabilities mindset and executing my plan and processes.

I will admit that I am growing awfully tired of going through the 7 phases.  I'm still net profitable over the full cycle, but it's taking a toll on my emotionally.

Live Webcast 3-1-13 - Another daily loss limit hit

Here's today's recorded trading session.  It was another daily loss limit hit.  I know the main mistake I made today was a rookie mistake; allowing significant winning trades to turn into full stop outs.  Time for some self reflection and analysis into why I behaved this way.  Several people, including my girlfriend, are suggesting performance anxiety from trading in front of an audience.  May be some truth in it...

Bull-Bear Cycles in Crude Oil

This afternoon, I decided to take a look at the daily chart for CL.  I rarely ever look charts longer than the 1hour, but I must say, I was intrigued when I did.

I couldn't help but first notice the pattern of uptrends and downtrends with basic trendlines.  I marked these periods "bull" and "bear" respectively.

Then, I noticed that they seemed to be fairly consistent in regard to the time it took each cycle to complete.
The two completed bear cycles were 55 and 56 days.  The two bull cycles were 84 and 86 days.

The next thing I noticed was that each consecutive swing was less than the previous in terms of distance the price moved.  Over the 4 completed cycles in the picture (bear, bull, bear, bull) The distance of the swings were 27 points, 20 points, 16 points, and 13 points.

So there you have it for the current state.  It's a time of fairly evenly spaced bull moves, evenly spaced bear moves, and an overall declining volatility of major swings.

I don't have any particular plans to use this information in my day to day short-term trading, but it's certainly something to be aware of and do a daily check on.  I may add it to my pre-session routine.  The only drawback to doing this for a very short term trader such as myself, is getting an attachment to some kind of "view" that can filter what you see and cause you to be blinded by your own preconceived notions about the state of the market and what it "should do".

Trade well,

-IT7

Live Trading Webcast 2-28-13

Today's session was a losing one.  CL didn't provide any real continuations to short term moves during my session.  The 30 minute chart shows a tightening consolidation wedge, and the shorter moves surely acted the part.

Even though this is not an example of a great winning session, I think this video may be even more valuable of a learning tool for aspiring traders than the videos which show win after win.  I hope readers are able to see that losing days are absolutely inevitable and completely unavoidable.  It's how you handle them that matters.  I can hang my hat on the fact that I carried myself in a good way today, despite the frustrating conditions.  That's the lesson I hope to impart by this video.