Trading NQ via Price Action

I should also add that I certainly understand what you mean about having no overnight risk. With futures I guess this is less of a problem since they do continue to trade and can't be manipulated as much like stocks, but its still a worry to leave a trade on and shut the platform down for the night.

And wow... 20 NQ points a day would be so lovely. What makes you not trade more contracts if I may ask given that I'm sure you have the statistics of each trade worked out so well? I would think its less risky to trade 4 contracts and go for only 10 points if you've got a very good setup versus only trading 2 contracts but now needing to get 20 points for the same about on money. Certainly if things go against you real quick its good to have less contracts on the line, but you don't have to be in the market as long.

 

O - The open happens right around here because I already saw price dropping before we officially hit the open. Two things about this open are that based on the 15 minutes before the open, it certainly looked like we were hitting some resistance. The fairly good climb up overnight surprised me when I woke up given the huge drop after trading opened on Sunday. The second thing is that if you look at my chart from yesterday, the one where I show the entire day, the level of 68 is pretty much where we have the apex of the hinge that I drew around a good chunk of the action, so these two pieces of information made me really think a short was more than likely.

A - I try my first one here, but sigh, I knew I got in on just a little scalp, no good setup, so I decide to leave quickly with an $11 profit.

B - So now this looks serious and I get in again, but also out fairly quickly so now I'm at +$76.

Well we keep dropping so nicely and of course now I'm thinking I should not have exited my shorts because any short now is much too late.

There are no real setups here. Price just keeps dropping. You can't wait for any bar to "close", and there certainly aren't any retracements.

C - By the time we get to here, the overnight low, I am watching very closely. (its not as low as price hit given that huge spike down right at the open on Sunday, but its the bottom of the trading range that followed so I figured this was a good place to put it). This indeed was an important level because although its not obvious on this chart, there was lots of hesitation at this level. You could tell everyone was curious to see if it was gonna break or bounce higher.

D - I got into another short here, now feeling as if we went sufficiently low enough below the OL to warrant more downward action, but I'm out far too quick.

E - So here I want to get in again, a whole 5 points away from where I got out, hence missing out on $100 profit in only a minute. So I think its crazy that I keep chasing and I'm out for a tick, happy to have this tick of course since price move against me right after my entry.

The problem was that after the drop below the OL and that level of 47 (which used to be 54 in the previous contract), there really weren't any other levels that I was aware of. The daily chart just goes straight up without a significant swing low to use as a possible ledge, so knowing where we might possibly land today was tough.

F - This here was interesting because once again, at the previous swing low, there was hesitation, yet when it broke, it dropped, and you can even see on the next bar how this quick drop retraces back up. This is why even though I'm scalping the whole day, I'm not happy about it as any of these quick drops can easily retrace back up.

G - Here was a little poke below the trading range that formed now for the past 8 minutes and it was quickly bought up. You can even see how this bar closes on the high at the top of the range. Price also finally made a higher high, so is this the bottom for the day? Who knows.... but its certainly a pause at least.

You know, its only a 40 point drop and lots of days have a range of 40 points, but this just happened so quickly and it was straight down essentially.

CONCLUSION

I'm of course very disappointed to have only $119 on a day like today. I don't hold like I said I would, and almost every day for the past few weeks I'm seeing that just one trade a day is all that is called for, which was often my first trade that then just needed to be left alone.

I am also now considering the macro implications of this. Dropping below the range we have been in for the past 7 or 8 days on the daily chart and knowing that we are at the top of the long term trend channel, it may very well be that the best way to make money is to just short and walk away.

If 47 really is roughly where that bottom level of the range is, lets see what happens as price climbs up to the level again. This climb back up might after all be the retracement we need in the hourly chart to set off more selling and the huge down move to the mean of the channel of the lower level.

Sadly I have a very busy day today so I can't stay around even though the day will get more interesting I'm sure.

Well, I'm up $119 but it should be closer to $800 on one contract if I just sold and held.

 

I trade all in/all out because that's what my stats/plan is based on, so the number of contracts is irrelevant. I was using 1 or 2 contracts as an example to compare to swing trading. Generally swing traders trade smaller than day traders.

Your entry today was stellar. There was no signal to exit for a long time. The first target zone would be the mid-40's because it was an overnight consolidation low and also a multi-day range low area. Price did not care one bit when it got there, meaning the next target zone was the overnight low. There was no serious defense there at all. Price moved up to the breakout level just enough to shake out all the breakout traders' break even stops and continued to fall.

Now look at the Thursday/Friday highs in the mid to high 80's and subtract the overnight spike low of 35. You get a 50-point difference. This is a measured move calculation you can use in case the pre-market LTL breaks down, which it does (and again your entry was fine, maybe a few seconds early, but your second entry was fully confirmed). So you then subtract that 50 points from the swing high prior to the LTL break (~4068) and you get a measured move target of 4018, which is likely the reason there was so much narrow range consolidation around that level.

One of the first traders I met through ET was BigHog. He never got tired of whining at me for trying to pick reversals. "Expect continuation!" he'd tell me and I'd roll my eyes like an insolent teenager.

Today was a perfect example of this: You got in at a trend line break. Just sit tight and expect continuation of the move until a) the market reaches a key S/R level and when it gets there b) gives a solid reversal signal (such as a 1-2-3 pattern).

 

I will have to look into the detailed analysis of the chart when I get home tonight... so thanks for this.

Ever since Db said a few days ago to focus more on the macro, I have been constantly running this in my head. I knows its a lot of CSW (coulda, woulda, shouda), but I still find it amazing that back in May I think it was when we turned around at about 3500 it was at least 500 points up. So with only 5 contracts, this is $50,000, and this number is just astonishing given that 5 contracts can be traded in a $10,000 account. I'm scared of the stops, I'm scared of having to hold if each minute profit diminishes, but I cannot overlook how at the end of the day, the less that is done with trades the better. So Db is absolutely spot on with saying that you either want to make money or you want to trade since getting in at the right time and just holding can be very profitable.

Anyway, thanks for the comments about my entries. My first one was very good too. I saw it so clearly NoDoji today, but I just have this fear that cannot go away. I was surprised by the move up over night, but figured that if we broke below, which we did on Sunday, that there could be some serious selling. I could see that given the pace of this move down it looked solid right after the open. It had the same elements of other days where there is just a constant wave of selling, not climactic because that would lead to a quick reversal, but just a constant and orderly move for the exits. And as you also point out there was no signal to exit, and the target zones that I had outlined were so far away that the first short could have been held. So given all this, I'm disappointed to have barely captured 7 points. Once we dropped below the OL then it was a bit tough since there was nothing immediate, other than as you point out a measured move, but I will more than likely take the road of looking at price telling me when its time to get out via the HH's and HL's, once of course I get into being able to hold and not just exiting for a few points profit.

Its also interesting how you say that price didn't care when it got there. For me, for my emotions, time is a huge factor, and I have to figure out a way to overcome this. The only reason today got me so excited was because the drop was so quick, so I could see my profit accumulate quickly as opposed to sweating through every bar. But of the 40 point drop that I was able to see, this wasn't anything special because all last week were 40 points moves, they just took all day or started much later in the day. So once again, a higher time frame would help with this.

I remember reading the stuff from BigHog in your journal as well, and for sure I know all the quotes about how the trend is your friend. But I do think that what I like about reversals, once you identify the levels properly, is that they are so obvious. As Db teaches, its all about where the rejections happen. For me, taking retracements in a trend means having to suffer through a loss. But that reversal is just so juicy because you usually know within a point or two if the reversal is in fact happening or not. This is what I see at least, what is easiest for me to see on a chart in real time. The retracements at the end of the day of course provide great opportunities to get in, but in real time, all I think is how I could just be buying at the top because if I didn't get in on the first retracement, each subsequent one is that much more likely to fail.

 

Hey NoDoji, just wanted wanted to illustrate your measured move analysis which seems spot on. The second thick blue line is just a clone of the first, and since this price drop was so quick, the line should be steeper of course, but I just wanted to make sure to keep it the same distance from top to bottom and hence roughly the 50 points you mention. Does this mean you were able to hold on for 50 points?

I did want to ask real quick, when you mention that price broke the overnight low, which is what I was watching closely as well (in fact, on my chart yesterday I had 3 levels all 2 points apart around this level), is this little pink circle where you say the the stops of the breakeven traders were run? Do you find they short just a tick or so below the overnight low and cover at exactly the same level or just a tick higher? I have also been looking at the level of the overnight range as juicy areas to take a trade, but what I have seen is that its safer to put a stop of at least 1 point if not 1.5 points above the overnight level low if price does break out below jut to make sure you don't get faked out. Here it looks like it went just a tick above... so is this what you are talking about when you say these guys had their stops hit?

 

Aye, a day full of... hmm... I wouldn't call them mistakes because that would imply I knew what to do and did the wrong thing, which isn't the case since I don't have any plan set out yet. So I would just call them a string of gambles that didn't pay out. Yes, I think that sounds about right.

O - Just before the open, we have some great downward pressure. For the hour before the open, I had to keep lowering my OL line since price kept dropping. So naturally, at the open, this selling pressure continues and I get in on the first bar.

A - The selling does continue after my entry for about a point but then turns back up. I'm hoping we turn around at the OL, but we go back up through it and I'm out for a 3 point loss so I started at -$64. The exit was at 1 point above the OL, so its not bad, but still not good to start with a loss.

B - Here is what I keep thinking these days. If I exit a trade for a loss, hence if I bought here, am I exiting because its going up? If its going up, I should just right away go into a long. Now if I don't think its going up, then of course it might turn right back down which will suck since I just exited a short for a loss. Of course when you have no idea the best thing to do is just not be in a trade, but looking at this logically, if an exit isn't based on emotion, then buying pressure is overwhelming selling pressure, so a long could be justified, but if there isn't a case for going long, then exiting a short is just based on fear.

Here it clearly was, but it takes me a few moments.

C - So now I enter a long here, but its exactly 5 points above where I bought before to exit my short for a loss. But of course I don't want to miss out so I buy, but I'm out for a 2 point loss, just before price turns back up. Of course my exit is based on the trade not working right away and wanting to keep my losses small since I just started with a loss, so its for all the wrong reasons.

D - So then I see what looks like a little range form and 4013 seems to be a bit of support, so when price drops below, I short. It does looks good to me even now given the break of the DL. It turns around quick and goes right back into that congestion area. The plan should really be to get out right away, to cut the loses short, and since price didn't take off down like I thought it might given what I thought was an exit from a range of area of congestion, the exit should not have been at the top of that range, as outlined by the pink line, but rather, the exit should be at the bottom of the range since price enters inside the area of unknown again. (unknown meaning we don't know which way it will break)

So far today I am literally just giving out money by selling at the bottom and buying at the top.

I think I'm at about -$180.

E - By the time we break out here out of the range my "no fear" attitude is just about all used up, but I guess I have good reason to suspect price turning back down since it could just be faking out the top. So I don't go long, but of course this would work beautifully.

Now of course I'm also thinking that none of this would be a problem if I just bought down at B or C and held after price didn't want to go down any further right at the open, but since I don't have that luxury now, to get into a trade that is long gone, I'm trying to find a way to salvage today.

F - Now this is where it gets juicy, and its about the only thing I've studied in depth. We are at the OH, and sure enough price does turn around 3 ticks below the high. I know I'd be shorting into an obvious up move, but these trades do work damn well when you get the level right, and if they don't, your stop can be tight. It does work here for a good 5 or 6 points, but of course I have no confidence to take it.

G - Here I will mark a swing low that could form the bottom of a range, and getting to this level breaks the DL, but I'm not gonna be so quick to short this time like I did at D.

H - So now I short here. I notice that we have a lower high, 3 bars of the same high, and although we might have a bounce at G, I will already be in a short higher up so I can either exit the short quickly at BE, or even already be in a short in case we break through the levels at G.

I of course don't hold too long, and I'm out for a tiny profit.

I - Here it looks like we once again have a fake out the bottom of this range. Now perhaps I'm a bit too quick to call these things ranges, they are after all just a couple of swing lows that somewhat match up, but its what I see.

This is the important thing though. When it fakes out the bottom, it can either come back up to the exit level to test it and continue down, or it can go back into the range to spend more time again there, or it can even go right through and out the top.

When I took a short at D that failed, price went out the top only 5 minutes later. So each time I have a trade that didn't take off, I really should be focusing on the opposite trade, and in the case of range, it might very well be that the reason the short doesn't work and price goes back into the range is because there is too much buying pressure.

J - This time we go out the top of the "range", which also happens to be at the OH, and we have no problem going through.

K - This high at 33 looks to be in the middle of nowhere, but if we look at yesterday, 31 would be the midpoint of an area of congestion, so this could very well be the level traders were shooting for.

L - I try one more trade here, a long off the OH. After breaking through, this area of resistance can now be support. I'm out for only 2 ticks, and although we do go higher, eventually we come down again and break through.

So it looks like I end at -$160.

CONCLUSION

So its a pretty crappy result today. I knew not to expect another huge drop today like yesterday, but I hoped for it!

I clearly got chopped up in stupid back and forth action, exiting trades just because of fear and because of the small losses which unfortunately added up to over 8 points now which wouldn't be that easy to get back, so I better not even try. Its not even a matter of making up the loss, its a matter of trading well.

I guess its easy to look at a chart at the end of the day, but my gosh, if I step back just a little, I think it makes more sense.

I'm disappointed in myself for not having something solid to work with yet... I keep just dicking around. I'm also disappointed that when I get into a move, I don't give it any room. Every day there are literally only 2 trades perhaps to make. Since I've been losing $200 on some days, I can easily open up my stops a bit, look at the macro view, and get into a move early and hold for longer. This would solve quite a few problems I think. (The idea here is set an expectation of 2 trades and be willing to hold through a 5 point stop if its a continuation of the trend trade) (the trades at an extreme level like an OL or OH can have much tighter stops I think)

I've gotten better with getting into a move earlier in some respects, but even that long at C today was far too late after I exited the short via buying much lower down. Any place down there was a great place to go long and just hold.

I'm so concerned with trying to just make a few points that I in fact end up losing many more than this. I can also not that price hasn't even gotten to 50% of the drop from yesterday (68 to 10 gives us a 50% level of roughly 39), and since we turned around just below 34 and are heading down, holding a short from yesterday would be much better than all the stuff I'm doing today.

But at the same time, I also know that I just need little tweaks. If I'm going to continue with my day trading and scalping, my exits have to be faster, which they can be, and then I have to be quick to see the trade in the opposite direction. And if I'm gonna take a longer term view, then I have to look for a good place to get in and hold without being spooked.

From the open today we only went down 5 points, but we went over 20 points above. So much opportunity, and yet I'm down -$160.

I'm actually not that mad today, just frustrated that it seems so clear, and I know what I should have done or not done after the fact, but in the moment, I'm a bit too eager to trade as Db would put it. The higher time frame chart would help with this as well, to give me more time to think and not take trades on a whim. Plus so much of this stuff on the one minute is somewhat noise in the whole grand scheme of the macro trend and its very much controlling what I do, hence I'm giving control to the market which isn't a good thing.

UPDATE

M - Took one more trade.. saw this hinge form, took a short out the bottom and I had intended to hold for a long time, but 6 or 7 minutes was enough for me. I see the downtrend in the macro sense, I see that the previous swing low at "I" will more than likely cause a bit of congestion, but I was scared that it might break up, and so I exit for a couple of points. Of course it drops shortly after my exit.

I think that because of my fears for now, I need to set targets, something like a 2:1 profit to loss ratio, keep a nice stop of about 5 points, so try for 10 points, and just let the trade work out. Taking for of a macro sense is, as I think Db would say, easier, and since I want to make money, because I really do, I need to change things up. Of course going for 10 points isn't exactly taking the macro sense, but here at least, ever since we hit a hit of 33, we are just coming back down. Lots of entries might stop you out if you get in at the wrong place and only have a 2 or 3 point stop, but this doesn't change the fact that the trend is down and the day might very well end 10 or 20 points lower once we get through all this congestion.

Anyway, so it looks like I end at -$129 now.

 

Well it got worse.

N - Drew in this wedge and thought of going long at 32 but didn't.

P - Price is now approaching this important level I have outlined. Of course the levels is plus or minus a few points since this is the bottom of the range we had been in for so long (this bottom is based on this contract, the previous contract had a bottom around 54.. still not sure how to put all this together when we change contracts).

At any rate, I thought this is great opportunity. We came up to test the level of the range that we left from so lets see what happens here.

Q - Saw a break of my SL, but my gosh, you can make these lines tell you whatever you want depending on how you draw them. But at any rate, I wanted to be short from 46 and price is already now below 42 and looks like its heading lower so I just get in already.

Of course it turns on me right away, but I figure I need to really hold now, give price some room.

R - I finally exit here... a loss of I think at least 7 points.

Off to have some breakfast, and I come back.

S - I notice these two spikes here, we have a bit of a rejection of 4050.

T - I decide to short here, partly because I'm fairly close to those spikes, and partly because of this little surge up. These do often retrace back down so I think I'm at least good for a scalp or a point or two.

U - And right here is where I have to admit defeat.

SUMMARY

So on a day when price goes up over 40 points, I am down -$362. I keep thinking this can't go up forever. I'm getting mad because I'm wondering why people are buying, don't they know the economy isn't good? Don't they know people don't have well paying jobs? Don't they know we have major problems in the world?

Don't they know we just broke out of this range we were stuck in for over 8 days and that we shouldn't be going back into it? As wrong as it is, it certainly seems like the market is just designed to screw little old me.

Of course the fear is that the minute I decide to go long, this is exactly where it will turn.

I know I haven't hit rock bottom yet, but my gosh, I can't be far now. Everything I do is wrong. When I buy with the trend I get stopped out, when I go against the trend I get screwed. When I have tight stops I make no money, when I have wide stops I lose even more.

I really do think that people either have or don't have a genetic predisposition to being able to trade well. Most people don't have this, hence why its so easy for the few who do to profit from them. I suppose it can be learned, or else there is no hope for me!

I wish the government would step in and make all this illegal (as if the government has my best interests at heart!! hahaha). Make people have to work hard for their money. These financial markets don't help the world one bit. We have asset bubbles all over the place, hard working people can barely get by and when things go bad, its these very same people who will suffer most while those making outrageous sums of money will still be living the good life on the backs of everyone else.

Aye... thanks for reading!

 

Yes, that's the MM structure you illustrated. I trade mainly CL and so I shorted NQ yesterday quite deep int the move, so no 50 pts for me. There was an overnight spike low and when price broke that and came back up to take out all the breakout traders' stops (which you illustrated nicely at a higher level), I shorted on the way back down through that 35 level and scalped a little over 10 pts when the consolidation around the MM level held.

 

1. Your thinking is creating emotions and you're trading based on how things feel as a result of your thinking.

2. Your comment "I really do think that people either have or don't have a genetic predisposition to being able to trade well. Most people don't have this, hence why its so easy for the few who do to profit from them. " is a "fixed mindset" comment. What if I told you that I made the same errors as you describe above and had to force myself to trade what I see instead of what I think? And that I still have the same thoughts you posted above, but the successes that came from forcing myself to do the absolute opposite of what I believed eventually modeled a new behavior and despite thinking the same things I can now simply put on what I'm certain is going to be a losing trade because price just has to turn around because it's gone too far.

Read Mindset by Carol Dweck - http://www.amazon.com/Mindset-The-New-Psychology-Success/dp/0345472322

Also, read my post here and during a strong trend, do what I say: http://www.elitetrader.com/et/index.php?threads/gotta-love-zero-risk-in-the-sp500.85694/page-317



3. Regarding "...we just broke out of this range we were stuck in for over 8 days and that we shouldn't be going back into it? As wrong as it is, it certainly seems like the market is just designed to screw little old me." Initial breaks out of a range (especially counter-trend break) have a strong tendency to fail. Once the pre-market descending UTL breaks upside with conviction shortly after the open, just look for pullback setups to go long. Notice the high of the 9:35 (eastern time) 5-min bar that signals the UTL breakout: 4016. Now take a look at where price found support on the deep pullback during the 11:10 bar: ~ 4016

Look at the 1-min chart and there's a clean 1-2-3 setup to go long. Once that 11:20 bar closes, you can connect the swing lows on the 5-min chart and add a parallel channel line across the 4033.50 swing high. There's your measured move target and notice how there wasn't a single multi-bar pullback on that 5-min chart until that upper channel line was reached.

It's all just math. There are algos conducting the vast majority of trading and they're based on math. "If this, then that". We're just jumping on for the ride, because once they get going, they go! These hedge funds and other fund managers have stuff to buy, a lot of it, and that's what creates a trend day. Same thing when key levels are stretched to the upside and there's selling back down to the key support levels.

None of this requires thinking about fundamentals or what it "feels" like price should do. It requires understanding the basic price action concepts and then trading them without thought.

The ONLY ways to do that are to do the opposite of what all those complex thoughts and feelings are telling you, or to automate your trading.

 

Thanks for this NoDoji. I am attaching a chart with what I think you're saying. I had a bit of trouble with the measured move but I think I got it right. When you said to connect the swing lows on the 5 minute.. you meant the swing low at the bottom dip after we opened and the low at 4016... correct? This gives a line whose parallel can be connected with the high at 4033 and extended to roughly 4045 at which point the 5 minute bar does make a slightly lower low.

I am also attaching what I think the 1-2-3 setup is. To be honest, I don't look for it nor do I have it in my head as I'm trying not to think about setups but rather behavior. I think that behavior on a short time scale chart like a 1 minute is a bit tricky though, and so a general macro view of what traders want seems to be better. Also, after the first hour, it seems to be just more of the automated trading as you once its been established if we are going up or down from the opening level.

I really appreciate how you have studied this in such depth that you can look behind the scenes and know what is going on.

I do absolutely know that it doesn't matter what the fundamentals are... I just needed to vent, and feeling what price should do is very dangerous for me. Perhaps with years of experience my "feel" might actually be a translation of "statistical probability", but at the moment, my "feel" for the market is just an emotion.

I got a chuckle our of your advice during a strong trend. My emotions seem perfect for buying tops and selling bottoms, so just reversing this would be what is needed for making money! On my chart, where I sold at Q, it was just as you say, where I am missing the reversal, and when I bought it back at R to cover my loss, it was also where I just couldn't take it anymore, and it too was a momentary top so a great place to get out of a long for profit. Incredible.. just incredible! So perhaps the secret is that I can use my emotions for trading, I just have to do the exact opposite!

Do you ever having losing days now?