News As Forecast Would Be Good For Bonds F2 Comments: A pause day w/both buyers and sellers active at times in the day. The market rejected 120-20 and 119-16/20 and closed at 120-00. It is pointed higher w/some help from the news. If tomorrowâs news is as forecast, it would be supportive for the Bonds. Tomorrowâs news: PPI is expected at -.3%; Core PPI at .2%; Retail Sales at .1%; Retail Sales, ex-auto at -.2%; Business Inventories at .5%; and Michigan Sentiment at 63.9. We want to buy early weakness and see if 120-20 can be taken out. If not, I will turn to the short side of the market. First buy zone is 119-21/25. Back up buy is 119-13/17. If 120-20 is rejected, OK to get short.
Defining Your Edge by Keeping Records If your goal is to trade for a living, you have to develop an "edge" on the market. Many traders believe they have an edge but lack the evidence to quantify that edge. First you must define the parameters of the trade you are considering, eliminating all subjectivity. Then you must dutifully record all such trades in a notebook or, better yet, on a spreadsheet. The spreadsheet is preferable as it allow you to sort on a variable or combination of variables to refine your parameters. Attached is a spreadsheet that provides the data needed to decide if an edge is present. The trade being analyzed here shows data for 34 trading days - 25 winners and 9 losers. That's a 73.5% win percentage. The accumulated profits are 64 ticks, which translates into $2000, or $58.82 per lot traded per trading day. Subtracting $3.17 for commissions leaves $55.65/lot traded/day. The number of lots you trade is dependent on your account size and risk tolerance. Let's say you traded 220 of the 240 trading days in a year. If this data is representative, and only time will tell that story, income of $12,243/lot/year is theoretically achieveable. This represents a significant edge, if the data holds up over time. Of course, no-one knows if this will be the case, but for now it is a trade worth considering. But without the data, you're only guessing and that can be dangerous to your trading account.
Preparing For Monday 9/15 F2 Comments: The market rejected 120-16/20 for the 3rd time and EOW (end of week) profit taking ensued. Hard to fight the desire to lock in profits and Bond traders didnât. The lower the market went, the lower it went. The selling fueled more selling. Funny how that works. The close was weak. The market activity favors lower prices on Monday. Some news to impact Mondayâs trading: Empire State Index is expected at 1.4; Capacity util. at 79.6; and Industrial Production at -.3%. Want to sell early strength and see if 118-12/16 can be taken out. If not, will cover. Sell 118-27/31 or 119-03/07. Cover if 118-12/16 holds. If this zone does hold as support, will look to the long side of the market.
Well I think the weekends news have made the last post irrelevant. Any chance of an update? I think that a lot of systems, my included have run out of levels on the upside. So how versatile is yours? What levels are you looking to trade today?
Monday Levels ES Resistance 1210/12, 1215/17, 1220/22 Support 1200/02, 1190/92, 1185+/- ZB Resistance 121.12/16, 121.20/24, 121.28/122.00 Support 120.20/24, 120.12, 120.00 Be very cautious. Any news announcement about Lehman, B of A, Merrill can send the market off on a sudden move. I'd reduce size and give your stops a bit more room.
Monday Wrap-Up F2 Comments: The financial woes continue. Lehman Bros. and Merrill Lynch left the world of the independent and have been taken over by a bank and a bankruptcy court. The economic news was also negative and the financials showed it by rallying and holding their gains. The Bond is still rallying as I type. Tomorrowâs news is about inflation, then the FOMC announcement. After the CPI news, the focus will shift to the FOMC announcement. This could dampen the activity after 1000 tomorrow. If the ES is sideways to lower, we want to buy early weakness and see if the OVN marketâs high can be taken out. If it holds, we will exit the longs and consider a short in anticipation of light profit taking in front of the FOMC meeting.
Volume Exhaustion - Another Basic Trade Another high percentage trade to add to your arsenal is the volume exhaustion trade. The tip-off that a VE trade is setting up is the width of the volume histogram bar in the first panel below the 5 min F3 Chart. One would typically expect that when the market is trading in a particular direction, that high volume would fuel that move. Our interest, as traders, is when the expected does not happen. In the attached chart, I've noted three instances of high volume bars that failed to follow through as expected. In each case taking a trade opposite the trend direction would have proved very profitable.
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Volume Exhaustion Follow-Up The attached chart highlights 4 examples of the volume exhaustion trade the occurred in the first 3 hours of trading on Thursday, 9/18. 1. 8:30am: Spike up with the mode in the lower 3rd of the bar and a close below the mode. The trade is to go short below the low of the signal bar. 9 1/2 ticks of potential profit. 2. 9:50am: Spike up with the mode exactly the sake as the bar that preceeded it. Closed on the exact low. 5 1/2 ticks potential profit taking the trade out the bottom of the signal bar. 3. 10:00am: Biggest volume spike on the page but no follow through. The more adventuresome among you could have shorted 15 minutes after the signal bar, but only 2 ticks were available. 4. 11:20am: Volume spike up with the mode in the lower 3rd but a close near the top of the signal bar. Taking the trade out the bottom of the signal bar had 15 1/2 ticks of potential profit. Watch for these trades every day. They occur with regularity.