Actually, you should realise that it is not necessarily that your idea is dumb per se, it's just that you don't have a well thought out strategy to go along wiht your idea. For example, you could take a position (.i.e go short) with a small enough position that you can handle a rally up past S&P 1200 without doing too much damage to your account and get out of it continues up much past that point. If however you are correct and S&P rolls over and heads south, you can add to your position around 800 and continue to add in a sensible manner below that.
picking tops and bottoms is how you make money, in addition to all the other things . It's a matter of risk management and experience.
It depends what you mean by "picking" a top or a bottom. If you're waiting for a reversal signal to form (which takes time), then that in my book is not what is meant by "picking" a top. I would say that "picking" a top in the context we are talking about means picking it right as the trend slams into the high point of the move, before any reversal has had a chance to form. That's what kills new traders. As an example of picking a top, check out the thread started a couple of days ago where someone decided to go short at 1049. THAT is an example of picking a top, and it ended the same way those things usually do, with a move right through his stop.
I'm mainly a counter-trend trader (currently profitable), but I mainly trade higher lows/lower highs. Sometimes on a climactic run up or a drop to major support I attempt to pick a top or bottom, I use a very tight stop, and so no major damage is done and in fact it's sometimes quite profitable. What I'd love to know, however, is how to get over the fear of joining a trend on a pullback when price seems to have have gone "too far" in one direction? I've done in it my demo account a few times just recently, but only very occasionally do it in my live trades, and as a result I'm leaving a lot of profit behind by not putting on great trades. Will continuing to profit sim trading this strategy ever help me get over the fear of adding this to my trading arsenal, or do I have start doing it live, say, with 100 shares?
Again, thanks! I get it... lower trend line of channel for uptrends and going long. Upper trend line of channel for downtrends to go short. On the same chart, suppose the lower trend line of the current channel gets pierced-crossed and a day closes below it. Do you go short?
It's not that simple. Most new traders want a simple formula for making money, something like "If A happens and B is true while C is above level D, then always go short!". It doesn't work like that. You have to look at things in context, and that means reading price action. What is the sentiment around that time? Is everyone bullish or bearish? What candlestick pattern is happening on that break? What pattern formed in the range that preceded the break? What kind of volume are we talking about - heavy or light? What time of the year is it? Are other correlated markets confirming the move? There is no simple "if this, then do that" formula. For example, shorting on a trendline break in early July would have got you murdered if you didn't get out quick. In general, a day of heavy selling should see some follow through. If there is no follow through, be suspicious of a move back up. Be careful when you are watching charts that everyone else is looking at, because the probability of false signals is high. To be honest, if you really want to make money you should be swing trading off of an hourly chart of some kind, and using the daily chart as your longer-term time frame. Look for trendlines on that level instead of on the daily, because it's easier and not as widely watched, which means you won't get a lot of false breaks. I have attached a 2 hour chart of the S&P 500... see the nice trend recently? Also note the highlighted yellow areas - they are high volume nodes. If we pull back, expect support around 1040. I wouldn't be surprised to see a range develop between 1040 and 1062 in between those two high volume areas for the next few days.
Interesting post because (new to ES and studying it furiously) I find that there are many traps in the middle of a given time frame. Today I saw a classic intraday short signal on the 5-minute chart but the price action stalled and of course our "big picture" trend is up and I thought, "This is a bear trap". If I were trading as a very short term scalper, it indeed was a bear trap as price quickly obliterated the setup bar and rallied. It's so important to know in advance your trading time frame and I believe it's important not to switch time frames mid-trade because the price refuses to move in your favor; however, I'm well aware that it's not the worst trading sin as long as you honor your max loss allowance. I'm still playing with this in my ES sim trading experimentation.
First, get rid of the notion of "too far". That's your problem. You have a preconceived idea of what "too far" is. There is no such thing as "too far"... trends can go on for a long time. Take a look at that spike in July - that was a record-setting spike, a historic upward move. All the way up, people were saying "It has to end, it has to end, IT HAS TO END!!!". They were all wrong, and many of them got completely slaughtered on the short side because they had preconceived ideas. I personally didn't, because I have seen enough things to know that literally anything can happen, so that historic rise didn't surprise me one bit. Since I don't expect anything, "too far" does not exist for me. The DOW can go to 2,000 or 30,000 from here - neither of these moves would surprise me. I know that any information I have about the market is incomplete at best, so any conclusions that I draw are by necessity flawed, which means that anything that I predict is at best an educated guess that can be proven wrong in a heartbeat. For example, yesterday I posted that we were at trendline resistance at 1062, and that we were near a topping pattern short term. I also said that it could ramp up a bit further, which it did to around 1071. Of course I wouldn't have been surprised to see it fall back 10 points just as easily as rise 10 points from 1062. When you have no preconceived notions, there is no such thing as "too far". That is up to you, really. The reason you feel fear is because you have uncertainty about what you are doing. Did you feel fear the last time you got into your car and pulled out onto the road? No? Why not? Because that action is now familiar to you. (I'm assuming you have a car here ) But I'll bet you felt fear the first time you ever did that in your life. Through practice and experience, it became familiar and you learned what to do, so the fear went away. If you feel fear about trading a setup, just practice it. Take a few months of charts and walk through them by hand, seeing all the situations where that setup occurred and what happened afterwards. If you do that enough and keep trading it on sim for a while, it will help. After that, start with a small amount of live money and see what happens... the more you practice it, the less fear you will feel. Definitely don't trade large size if you are feeling fear about anything, that's a no-brainer.
If you don't need to trade huge size (100+ contracts), don't trade the ES. It sucks. Trade TF (Russell) or NQ (Nasdaq). They are cleaner moves, and on TF especially you get better value with commission and slippage. There are a lot of traps in ES in general, which is one of the things that makes it hard to trade... why trade something difficult if you don't have to?
You reveal a lot of experience in this comment. I hope newer traders here, like myself, grasp the depth and importance of this. Today I watched ES spike hard to 1072 on the Philly Fed, and sell off within seconds. Was this nothing more than amateurs trying to be "first", or was this price action indicative of a strong resistance level, since the "good news" never prompted the market to come close to retesting that level? I actually have no opinion for a change, which may be a good thing