There were incredible opportunities to make money in the stock indices today, particularly after the US opened up. Here's a bit of my thinking (albeit not necessarily the sharpest today.) The recent tech-led rally seen in the cash points me towards picking the NASDAQ as a currently favoured Stateside indicator. Indifferent tech stock results out after the US market close yesterday (notably Intel) combined with the tiring technical picture led me to believe the States would sell off early on as investors factored the news in. Sure enough it came off, not for long, perhaps on account of the data, & JP Morgan Banc One story. However, the opening price action that translated across to the European indices was golden. Perfect wee flags, AND at the end of the sell-off, one of my favourites, a double bottom reversal pattern after over extended price action. Useful, although perhaps in this case it wasn't 100% textbook in formation. For reference, on the DAX I'm taking the area around 4066 at 4.30pm as the line of resistance. I even managed to trade my nemesis the FTSE reasonably well today! Result. So, my thoughts and a rough translation into perceiving trading opportunity. I'm still curious to read about other people's approaches. Do you use one pattern exclusively, or a combination, is it all gut feel, how do you set targets, where do you see opportunity, what parameters do you use? There's certainly more than one way to skin a cat.
You don't think much of these firms do you?! Fair enough. In their defense: - they don't pretend to make your dreams come true. - nobody is missold, in fact it is possibly even difficult to get a chance to trade there if you have no experience. not only that, if you start as a trainee, you will be using the firm's capital to trade from. if it doesn't work out after 6 months or so, i think most firms wave goodbye to you and the debt in your trading account. financially, it's the firm's risk. - many of the punters are ex-bank traders, i.e. fairly experienced & sophisticated. - they are incredibly simple operations and relatively straight. i've only heard 1 story of someone getting burnt. if one had misgivings about a particular shop, it would be easy enough to go to another assuming you have capital. - there's very little indeed for the FSA to investigate. Or am i being naive?
Hey alpha_monkey, In a way you could say my style is "intuitive", but it isn't really. It's more like "intuitive fine-tuning after statistical verification based on arduous hand-testing on charts, numbercrunching in spreadsheets and realtime simulation & verification"... So while I do actually have some quite refined systems and parameters (such as bar ranges, H/L rules, tick excursions etc), I do further fine-tune this with "intuition". Well, I actually don't believe in intuition, so let's just say "experience in interpreting the tape and correlating market action as a means of extensively improving mechanical approaches"... Are you still with me? OK, here's what I look at (I only trade DAX): EU Open: - Charts: DAX 1, 5, 15m, ESTX50 5m, Line chart Overlay of DAX/$DAXI (to see future/cash spread) - Market depth ladders of: DAX, ESTX50, GBL(BUND), CAC40 - Tapes of DAX, ESTX50, GBL US Open: - Charts: DAX 1,5, 15m, ESTX50 5m, Line chart overlay of ES/NQ/YM, ES 5m, NQ 5m, ES 15m, NQ 15m. - Market depth ladders of: DAX, GBL, ES, NQ - Tapes of DAX, GBL, ESTX50, ES, NQ What do I look at when trading? Mainly 5-min bar ranges, I look at the average true ranges of bars and if their highs & lows are lower or higher than the previous bars'. If so, I will stay in that trend, and at the same time try to sell the top of each 5m range and buy the bottom of the same, basically taking the "noise" that makes the 5m trading range. I also look at the 60T chart and the 1m chart a lot, for finetuning the entries. So, clearly I do use a lot of limit orders, and am not exactly too hot for "lighning fast executions". I like to have my orders in place before price gets there, and I like price to come to me. I rarely chase the market. I also like to play range breakouts, and surprise "breaks", and quite a few different things. I try to deal in one way or another with whatever the market throws at me. I think the most important is to know the difference between range and trend, and identify it immediately. If you're playing ranges once the DAX is ranging - you can make huge points! DAX often has 5-10pt ranges, where it will just whizz up & down between highs and lows, this alone once a day or twice is enough to make a decent living. I try to get at least 20-30% of the daily range and made a much higher percentage of daily range today. It was the best trading day I ever had in fact, in both net point and net $ terms... Very very decent! I wish every day was like today. It sure was a gift to any trader! How about yourself? How do you trade? Cheers!
Very interesting post!!! It's great to read posts like this. Currently feeling extremely tired so will have to get some sleep before replying properly. One thing for me on the research front, I'm about to start looking at backtesting patterns from LBR's book StreetSmarts. Will try to post any interesting conclusions.
I am very much a visual trader. I'm sorry I can't find a better way to put it. When the chart suits my view I'll trade. I find that indices are usually volatile/noisy enough to allow a proftable tick to be made in a 5 minute window. This means for me, perhaps similarly to yourself, I'll buy lows of the range and sell tops of the range, normally with the trend on my side but not -always-. Outside of this, I use technical reversal patterns (see Murphy for details) and momentum patterns to take a longer term profit (i.e. 5 ticks). Disappointingly perhaps, your approach is not that far off from mine. (Very sorry - it's true!!!!!) Currently: EU time - Charts: 2 minute period bar graphs of EuroStoxx, DAX, FTSE, BUND, EURUSD - Chart Setup: 1x 5 period EMA (midprice); 2x 20 period EMA (high, low); RSI - Market depth: Usually the EuroStoxx & DAX. (I tend to trade EuroStoxx on a range basis, admittedly longer term, and the DAX on breakouts, spikes etc) US time - EuroStoxx, DAX, FTSE, NASDAQ, S&P, IEURUSD - Market depth: EuroStoxx & DAX (Don't often trade outside of Eurex) However.......... when trading the OMX, a personal favourite now and again, market depth and price action are really enough in conjunction with it's graph to trade it well. I look at the major stocks behind it - Ericsson etc - the 60 min EMA trend, and the broader European markets. It can be an absolute winner. The lesser known markets are no bad thing. I've said too much...
Regarding previous posts on my trading approach.... Another beauty this morning. Quick sell off (also a possible moneyspinner), leading to inverse head and shoulders... Perhaps not truely inverse H&S, but as a pattern it works - end of a small trend lower on a 2 minute chart, 74 the low, the "head" fails to go lower than 74, very small right hand side shoulder which is a positive sign. Bottom at 2874 Neckline at 2883 Take profit at 2892 (83+(83-72)) Anyone get some of this in the bank?
My trading falls into three categories - bread and butter trades of a few ticks, trading off news, and longer-term (i.e. more than a minute or two) directional plays You are all familiar with basic scalping - watch related markets and pick off prices that are a tick or two out of whack compared to the other markets, play bounces off support/resistance for a few ticks, or hop into resumptions of a prevailing trend after a brief pullback. I also like to do what I call "spread scalping" - this is just normal scalping but doing so across two related markets to reduce directional risk and improve the probability of success. News is about fading overreaction to minor data (e.g. CPI expected 0.1%, comes out 0.0% - if bonds get bid up more than 5 or 6 ticks, I would look to fade that move unless the rally was very strong), and playing for the continuation trade on the occasions where you get surprisingly out of line numbers. Directional plays are about waiting for a meaningful trend to establish itself, and then getting on board in the appropriate way. Different types of trend have different optimal methods of trading them. Generally, the more noise and choppiness, the more you should exploit it by trading pullbacks against the trend and booking profits on overextension in the direction of the trend (especially into levels); the less noise and pullbacks, the more you should follow the price action and go with breakouts/trailing stops, exiting on reversals rather than trend continuations (Tuesday morning's action in the Bund is a good example). If a trend eventually starts to accelerate strongly, then I raise my stops and start looking to book profits on a blowoff top or failure of momentum. I also trade reversals, for which I require evidence via double tops/bottoms, failed breakouts, and/or a changing pattern from higher highs/higher lows to lower highs/lower lows. I have more confidence if this is combined with failure to make a sustained break through a significant support/resistance level. I will sometimes try to short a blowoff or buy panic, but this is a volatile and risky strategy which requires patience, timing, and strong nerves to do right. The trick with directional plays is to NOT trade them when the market is just ranging about normally, and especially not when it is acting in a really unpredictable/choppy or "dead" market. During these times you will simply get chopped up by false signals and random moves. The key is how to distinguish between ranging/directionless action and trends, in real-time and without the benefit of hindsight. This is largely a matter of experience - trends look and feel different (especially on the market depth) to directionless/meandering markets. What I can say is that it takes a lot of patience to stay on the sidelines while you are waiting for a clear trend to show itself. Finally, I want to have a position only when the market is displaying predictability - once that predictibility is no longer apparent, there is no reason to risk loss by keeping a position open. I have often made a good profit, and then overstayed the welcome, remaining in the position after the risk/reward had shifted from favourable to random or unfavourable. Capital is scarce and hard to earn, so you should not throw it away by exposing yourself to risk when the odds are no longer clearly in your favour.