The risk reward in all markets is now poor. Normally I would sit out and wait for a dip or rally siuation. Fortunately I now have momentum orders to scoop up trades that flow strongly to the side I am in support of. This puts me at risk of same day rally reversals but I try to positon my entry orders at points that are far enough that only a large rally reversal could trigger the order and cause a loss. I am retaining the order to short 4 gold at 860, exit at 854. 2 Natural gas has been adjusted to buy at 12.86 and sell at 13. 5 Yen is set to short at 9.225 at exit at 9.175. 6 cocoa is set to buy at 3340. This order is open with only a fail safe stop.
The natural gas order filled but the high of the day was 12.990, so I missed my exit order by .010. Ironic that this would happen in this market because I remember my first momentum order in NG exit on the highs of the day with only .010 to spare and I noted that this was too slim of a margin at the time. I don't feel too bad because I exited at 12.936 for decent profits. My cocoa trade filled on the high and close of the day, 3040. I do not like the pattern right now, a sudden selloff could happen at any time. I will exit as soon as the market opens. Today's trades are all momentum orders once again. I really like these orders becuase they guard against trades that go the wrong way. I see myself using standard orders rarely now, only when there is a good dip/rally to enter into a concurrent pattern. A lot of my trades are highly speculative and will depend on a reversal day tomorrow. Therefore I do not think most of them will trigger. I have a short on 5 wheat at 8.52 and cover at 8.35. Wheat is the most negative of the grains that I follow so it is my choice for a momentum short to the downside. In case the grains have another strong day, I have a long buy on 6 corn at 7.44 and sell at 7.53. Corn is the strongest pattern and is solidly concurrent to the upside, unlike wheat which was in a downtrend. Problem with the risk/reward here is that the SL is so overextended to the upside from this massive bull rally that a sharp selloff could occur at any time, so momentum orders are better suited. Stocks were very strong in terms of relative strength today. The YM was down decently, ES was about neutral, and ER2 and NQ were the strongest. This is exactly the relative strength that indicates good upside odds. Fear index (VIX) is also in the comfortable range and down slightly on today's action, which is an upside indicator. The line patterns themselves are not that strong right now with the trends either slightly up or sideways now, and the MLs are sideways. SL has made a lower low recently which is negative, but is pointing up which is positive. Heavy anticipation of the ML shows that it may turn up these next few days if SL continues higher. This trade is also highly speculative so I am using a momentum order to fill 4 ES at 1371, no exit order except the fail safe stop. The pound rallied sharply today. The pattern is still concurrent to the downside so The longer term outlook for this market is pointing down. These next few days are quesitonable though, so I'm putting a momentum order here in case the market decides to quickly reverse after only one rally day. I am shorting 3 pound at 194.2, exit 193.6. I do not expect this one to trigger, this order is just an early dip catcher. Other dip catchers are in Cotton and Sugar. The cotton pattern is strong to the upside on the short term lines but the overall trend is down. This is normally a situation that I would stay away from but I figured it would be OK to set up a momentum order to catch a sudden selloff here. Short 9 at .7300 cover at .7215 Sugar is basically the same situation. Short 12 at 10.75 cover 10.55.
Pretty bad day overall. I got rid of my cocoa at 3021 for a decent loss. 4 ES sold at 1361 for a decent loss. 9 CT-MN8 covered at .7370 for a large loss. Only positive trade was my 3 pound contracts which covered at 193.6 for small to decent profits. I have identified several mistakes that I made yesterday 1)Most significantly I have spent much less time on my personal journal which is more analytical, and more time on this one. The reason is because writing a trading strategy out in one or the other seems to promote a different kind of thinking. In my offline journal everything is very structured with separate sections for risk analysis and current market actions, on here there is no structure which gives more "creative freedom" in my thought process but also allows me to make more mistakes. 2) I am assuming riskier and risker trades. The cocoa trade was not that risky but not the good either in terms of risk/reward (which I would have identified if I had written in my journal). The cotton trade was highly speculative and sized too much, I should have been risking less, not more, than my average risk tolerance for a trade when risk was so speculative as it was there. On the other hand I sized too small on my pound trade because in the past the pound has been one of my worst markets. So even though that trade had the best risk/reward, it was sized the smallest. 3) I am giving less cushion on my momentum orders to execute which is finally causing some of them to fail. The best example was the ES trade which at the time I set it, was only set to trigger 10 points above the current market level. A 10 point move in the ES is not indicative of significant upside pressure. I knew this but felt that the risk/reward was good enough to lower the momentum threshold for the trade to initiate. This was a costly mistake. Today's trades will be posted with much more professionalism in my decision making.
What I've caught myself doing lately is being lazy with positions and using mometum orders to try to catch price moves without trying to anticipate their direction or odds potential myself. I did not do this intentionally but my mindset creeped into the belief that it is better to set trigger points for orders and let the market pick the good ones rather than try to figure out for myself which way prices were most likely to head. This is what created the problems of yesterday. I will stop this bad habit immediately and begin market timing like a professiona trader should. Although I was chopped out of my ES position yesterday, stocks still look good on the upside. Once again the relative strength pattern of YM>ES>NQ,ER2 was visible today. Additionally the lines are a bit more in support of the upside. SL is still coming off of a lower low which is not good, but if it can break the "trend line" that forms when drawing a line through the peaks of the recent SL highs, then this makes the SL situation much more positive. I also don't like that there is no dip to buy off but the relative strength pattern is enough for me to devalue that. ML is turning up and will continue to do so unless SL falls off rapidly. Trend in all markets is still neutral to up (except YM). I see a good enough risk/reward to take a moderate sized position. I won't fuss with the ES because it has not been tailing the NQ as well as usual lately. I am longing 3 NQ at 1984, stop 1953. I have 3 momentum orders all set to catch a potential selloff in some markets. I ibelieve each market has a case for a sudden, strong selloff. Silver has had a large rally recently which weakened today. Trend is still down (although weakening rapidly) but ML is set to strengthen to the downside. SL has made a lower high which is negative, but also a higher low which is positive. When a series of these is created the short term price flow becomes even more difficult than normal to predict because the short term price is "coiling" up. Sometimes this will create a sudden sharp rally or pullback. A chart of silver is attached to show what this looks like. Both cotton and wheat are still overextended to the upside. Because they are so overbought I can't try the long side because a sudden rally reversal could still happen at any time. However I still think a properly placed momentum order on both of these trades is acceptable in case of a sudden, strong selloff. Short order place on 2 wheat at 8.65 exit 8.48 Short placed on 4 cotton at .7145 exit .7060. I hope both of these entry points are stretched far enough away to guard against a pullback followed by a same day rally reversal.
I was wrong on the NQ trade and took a decent loss at 1953. Relative strength is normally a fairly reliable indicator with 2 days of confirmation, but here it obviously failed. Sl has turned down and now the pattern is unquestionably negative. Not extremely negative, so I could not short a big rally, but if we get some more downside pressure followed by a decent rally it would set up nicely for shorts. My timing has been off lately. Looking over the markets I see that the patterns that I am supposed to look for, which are concurrent modes of long term and medium term price flow, are either not there or deteriorating in most markets. I've seen this before and jsut like now, this tends to be the period where I give back some profits. Also a new thought on my momentum orders: They can encourage "lazy trading" on my part from me rigging up several of these orders to ty to catch moves in markets I have no business being in. They can also have a poor risk:reward after the order triggers because in order to make decent profits with these orders i need to increase my size while also reducing stop margins to make up for the smaller moves they catch. But before the order triggers, momentum orders are far superior in risk:reward since they require price pressure confirmation before they trigger. I have had only one of these orders trigger and pull back to hit the stop for a loss (the cotton trade) There was also the cocoa order that triggered, closed at break even and then sold for a loss the next day, but a large part of that was due to dumping 6 contracts during a thin period right after the market opened. So for the next week or so while most markets will be "reseting" (metals, grains, financials) I will practice some restraint and lighten up on number and size of trades. I see 3 trades worthy of a mometum play: Grains have been very persistant to the upside recently. I made a decent upside trade but my continued attempts to try to catch a dip in these markets has not worked. It will happen, just hard to say when. I believe I have been making a mistake trying to anticipate a dip when upside pressure has been this strong, although this mistake has not cost me because of momentum orders, it has not made me any money either. There have been a few days of chop recently which is a precarious situation but when a rally is this strong, some chop is slightly more likely to be a bull flag than a sign of reversal to the downside. I am longing 3 corn at limit 7.62 sell at 7.70. Cotton is in a similar situation but too dangerous to try the long side because this market likes to make spike tops and then reverse. 2 days ago might have been the newest spike top. SL is turning down now, though in situations this strong the SL is not that accurate. Because this market makes spike tops followed by sudden selloffs I feel a momentum order to the downside is a decent RR. Short 3 cotton at .7225 cover .715 Cocoa continues to breakout to the upside. Anything is possible but cocoa does not tend to sell off hard after making new highs. I am trying 2 momentum orders on this one with narrow and wide targets: 4 cocoa set to buy at limit 3094 2 set to sell at 3135 2 set to sell at 3150 Stops are set proportionally away from each order.
3 cotton shorted at 7.225 and sold at .735 for a decent loss. Today has been a time of reflection for me and I want to post what I believe I have done right or wrong, with emphasis on these new momentum orders that I've been using liberally. The first time I used a momentum order was the day that crude oil fell back to its old level of about $131 after spiking to $138. I knew that in these situations there was a good chance of another next day, sharp upside reversal. The issue was that risk was substantial at the time and using a normal order would have poor risk reward because short term price flow was too erratic and could easily continue its plunge downwards. So I did some thinking to find a solution for this problem and tried something new. I entered using a buy stop (so price would have to trade through a certain level) and stacked a sell limit order on top in an attempt to make a quick profit if a large spike type rally occured. This ended up happening. I was pleased with how smoothly everything worked out and tried it again on 3 more trades. Not only did one trade execute successfully once again, but the 2 trades that would have posted losses, instead were not even initiated, which substantially boosted my risk:reward. I did this some more and logged 9 consecutive profitable trades. I check my account only every 2 weeks to minimize emotions from volatility and focus on what matters so by my own rules I was not allowed to see how much I made, but a friend took a look at my account and hinted that I was very close to breaking $100,000. If he meant I was at "only" $95k, that would mean I was up about $12,000 in a week. My risk:reward seemed incredible at the time, I felt this new momentum order would allow me to pull money out of the market at will. This last week has brought me back to reality. Momentum orders are a great tool and have their place. But they can be abused and undermine a good trading system, which is what I feel has happened this week. I am a swing trader. I am supposed to be timing Interday moves in a 1-3 day horizon. I originally created a mometum trade to make a quick profit intraday in an otherwise unacceptable risk:reward situation. After I saw their ability to block losing trades from initiating, their purpose has since been modified to suit this end. This has caused several problems: 1) In order to use short term price pressure to "confirm" a trade with short term price momentum to the correct side, the "trigger point" needs to be placed quite a distance from wherever it is currently. This removes a large amount of ticks that swing traders depend on to post big percentage profits (which are needed to offset sometiems equally big percentage losses) 2) Limit orders further decrease my edge (by capping max reward). Swing traders can post substantial gains in a winning trade because an interday timeframe allows for large moves to be made, and without exit caps some trades can post impressive gains per contract. 3) With less ticks to pick up on a winning trade from my momentum orders, size needs to be increased to make the amount of money I am used to making per contract. Sizing higher forces me to reduce stop levels to intraday swing trading levels, usally around 75-150 ticks. 4) Not only do I find intraday moves to be more erratic and volatile compared to interday moves, but I am just not a day trader in any form, and now that I'm playing the intraday game I am forced to place stops based solely on intuition of how much a reasonable intraday move might be without a significant reversal in short term price pressure. I seem to pick these levels pretty decently actually: Today's cotton trade was shorted at the bottom of an upcoming intraday rally and exited out at the very top (the rally shot up about 120 ticks and hit my stop about 1 tick off the high, and then proceeded to sell off the rest of the day. That means I time intraday moves perfect enough to have my stops trigger at the maximum loss level! All of these issues combined shows that the deviation in my trading strategy have caused me substantial losses. If I had turned off my computer on Friday and forgotten about trading this week I would have posted an approximate $28,000 gain in 2 weeks. I estimate these last 4 days have netted about $12,000 in losses, and although I am still pleased with my net gains for this month, it is a far cry from what I could have gained if I had practiced the patience/discipline a swing trader needs when market conditions are unfavorable and sitting on the sidelines is necessary. Day trading allows for daily market action, swing trading often does not. $100,000 is no longer within reach for this month, violating the rules of my trading system ensured that. Hopefully any new traders will take this expensive lesson from me: Watch yourself for deviations in your trading and constantly evaluate whether you are improving, or (more likely) straying away from your trading system. EDIT: One more thing to say about momentum orders: I will be more methodical when using them in the future. What this means exactly I am not sure, but future wins/losses will tell me what situations these are most effective in. For example: Catching next day reversals after 2 consecutive days of high volatility (Crude shooting up $10, then falling $8) Setting up "selloff nets" in cases of against trend reversals that are strong enough to change the trend (cotton, sugar) Squeezing out more with-trend price flow in situations that look overextended (natural gas, the grains) Setting "pressure nets" on one or both sides of a market that seems to have lost momentum but could explode either way (euro, the precious metals)
Going to hit the reset button today and trade like I used to. All orders today are regular orders Once again stocks show good relatively strength, with NQ and ER clearly strong and ES/YM about neutral. Relative strength in stocks has not been accurate the last few days but all indicators are inaccurate sometimes, I canât completely disregard them for being wrong sometimes. One things that really does concern me is SL on a series of lower highs and lows, and the trend has started to turn down. However in stocks the trend can lag quite a bit especially on the downside so a weak trend isnât that bad, though it definitely doesnât help. What I am seeing that supports a trade is 1) A 2 day dip followed by a neutral day in ES 2) NQ and ER2 clearly up when ES was not 3) ML pointing up, though this is also weakning. This is not the best pattern in the world but I think these 3 are good enough for a light long of 1 ES at 1341, stop at 1323. Natural gas has a very strong uptrend. Especially when trend is this strong, it is the most important indicator. Sure trends lag, but anyone with enough guts to hold and roll a single GNG contract for 3 months would have made $10,000 a month just by owning an NG contract. When my account is big enough a portion of my account will be devoted to long term trades like these. Until then I will stick to short term speculation. Todayâs big down day cleared a lot of speculators out and with a trend like this there has to be a load of upside speculators. In NG it seems that the bigger the down day, the shorter the dip. Things could always be different and this may be the turning point but I like the upside odds for the next few days here. The ML is also on a series of higher lows and higher highs which means intermediate term pressure is also flowing upwards. Although neither the direction of the ML or SL is good, this is not much of an issue in this market. Long 1 GNG at 12.862 stop 12.560. Cocoa is in a large bull market rally. These often go on longer than expected. I want to be long this market often but with price this overextended, 4 contracts is too many. I am scaling back to 2 and may add to that on the next dip.
Hello Ashan. I'd like to commend you on an excellent, thought provoking journal. Your commentary is clearly head and shoulders above what one normally finds in this forum. I have been grappling with the daytrade/swingtrade conundrum as well, and found your comments very applicable and relevant to my thinking on this subject. All the best with your journal and your attempt to continue the success you enjoyed via Chick's daily publication. I too have great respect for the man and his accomplishments and will miss his input. Best Regards...
Thanks for the kind words Turbovach, I wish you great success as well. The ES contract was stopped out for a small loss (only one contract) I sold 1 cocoa yesterday (not 2 like I planned) for 3088, and 3 today at 3125, for small profits. I am still holding onto my NG contract which is posting decent profits. I called Chick today. These days he says he is only watching the big markets because lately he has not felt the drive he normally has to play the trading game. Ending his letter and effectively his "teaching business" has probably affected him quite a bit. I hope he gets better soon. Chick told me that I had been valuing relative strength too much, that it should be used to confirm a good or borderline pattern but not go against it. So I definitely made a mistake here, another costly one at that! The pattern is actually concurrent to the downside after today. The SL pattern was very negative with its series of lower highs and lows and even the ML had this pattern. Even trend was down. Mistakes are easily seen in retrospect so I'll take this as another lesson. One good thing that I did was sizing this one lightly as I should have giving the shaky (at best) case for the upside. After mentioning that these day I only try to get into trades that have dip/rally situations Chick also told me not to do that so much. While dips/rallies can improve the price one buys at, they actually do not improve odds of a good trade (unless I guess someone is particularly good at calling dip/rally situations) I have had mixed results when buying at a "neutral" price, and buying at what seems like a "premium" to attempt to get into a solid move has not made me money. Still I'll try to consider what Chick told me.