Alright, look. I'm going to tell you something that I probably shouldn't, but this is the key to the entire markets. If you can figure this out, you will make a killing. Most people don't actually realize this, although all successful traders probably do. Think about this question: If I told you that tomorrow was going to be a heavily trending day for 100% certain - do you think you could make money? Of course you could. A five year old could make money. All you would have to do is buy/short an MA crossover, and get out when it crossed back. Simple as pie. Now if I told you that tomorrow was going to be a range-bound choppy day, for 100% certain - could you make money? Of course you could. Just use any oscillator you like, buy when it turns at the bottom and short when it turns at the top. Alternately, buy support and sell resistance all day. You would make a killing. So you see, you already have all the methodologies you need to make all the money in the world. The trick is knowing when to use each system. There are some indicators like ADX which are supposed to detect trending conditions, but they are generally complete crap so don't look for some magic indicator to tell you. Personally I have subdivided the market into 6 separate condition types, each with its own separate trading system designed to extract the most amount of money during the time in question. (I know to the tick exactly how far retracements are likely to go in each condition type, for example.) Trading experience and intuition is what you need to seamlessly transition from one mental state to another as the market changes all day - and this is what it takes time to learn. The bottom line is that you have to use your human intuition and experience to detect trend vs. chop, and then apply a mechanical system once you have determined the correct condition. A computer can't determine trend vs. chop very well - your mind is a lot better at it. As I said, there are clues for what to look at to figure this out with a high degree of accuracy, but I'm not going to tell you any more than I have already because it's getting close to revealing something I don't want to. What you really need to do is develop a separate trading strategy for each market condition (something that should literally take about 5 minutes), and then spend all the rest of your time and effort thinking about how to detect when and how the market is transitioning between range-bound and trending states. If you can do this, you will make money all the time. Forget about running one system in all market conditions, that's stupid - only idiots do that. This is all I can tell you.
Do you determine the current day's market condition before the open or after the open as the action unfolds?
Both... prior to the day I generally have an idea of what I expect - for example, yesterday was a massive down day, so I expected some consolidation today, and that's exactly what is happening. I also monitor public sentiment to see what the ordinary people are thinking to get a contrarian feel. That's why that rally in July didn't surprise me one bit. I knew since everyone and their dog was looking at that head and shoulders pattern, we were likely to get the mother of all squeezes. There was also a strong VSA buy signal a few days before the first spike. Having said that, it doesn't really enter into my trading decisions on a daily basis - I keep the overall picture in mind, but it doesn't affect my state during the day. If the market proves my assumptions about the day wrong, I immediately go with the market. I generally make second-to-second decisions about the state of the market. For example: today we had a report in crude at 10:30 AM EST. There is a trading strategy that I employ for the first few minutes after a report like that comes out. However, I know that this condition cannot last for more than a few minutes, so the market will almost always transition from what I call a "crazy up/down" state to a "heavily trending" state within a few minutes. When that happens, I switch to strategy #2. Once I detect that the market is slowing down and about to enter a range, I switch to strategy #3, and so on. The detection of these states is immediate, and anticipatory. You have to look at a few key things to figure it out. Same thing in reverse. When the market transitions and is ready to break out of a range, it starts to do certain things on the very short term time frames that most people miss. These early warning clues give me an indication that it's time to stop trading a range strategy and start getting ready to buy/short and hold for a longer move. The key to all of this is knowing how to read all these little signs, and knowing what to expect. It takes a lot of practice to seamlessly transition from one state to another, and you really have to know a particular market like the back of your hand to trade like this. The trick to being a good discretionary trader is knowing when to use your discretion, and when to just blindly follow your mechanical rules. The blend between these two things is what is important, and it's not easy to do in real-time when things are moving like crazy. (Incidentally, I would also recommend attending a webinar by Denise Shull if you can at some point - she has some very avant-garde ideas about how to psychologically approach trading that contradict most of the standard trading advice, and just happen to be pretty much completely correct. Check it out.)
You're welcome. There's actually a lot more that I could say which would really illuminate things - but like I said, I think I've already said too much! Good luck.
Let me know if you ever write a book. I'll definitely buy a copy. ;-) Do you think TradeGuider would help me out as an expensive set of training wheels in order to recognize the different states of the market, or would that be a waste of money? (i've already lost the equivalent of 17 months salary this year trying to trade futures..I had a problem with revenge trading that got out of control...plus I fought the uptrend which was costly....so I would hate to waste more money...although I might already be wasting money on the trading room depending on how it works out...yesterday certainly wasn't very good) BTW, currently, there have been zero trades today in the trading room I'm a member of because he stays away from chop altogether.
Not likely, but I'll let you know. With TradeGuider they have something called the VSA club which is free to try for the first month or so I think (it was a while back anyways). You get to attend some webinar events where they describe VSA to you, and I think now they are allowing members to beta test their new software for free. So it might not cost you anything. Having said that, I've see it in action and it's pretty good at spotting VSA turning points, so I really think that it would help you. It's especially good for beginners because when each signal comes up on the chart, you click on a little icon which pops open a window and gives you a very detailed explanation of exactly what condition the software detected, and what that means about the market. It's great for learning. If you're going to spend money on anything, I would spend it on TradeGuider ahead of anything else. They hold webinars all the time, go to their site and sign up for one or contact them and ask how to get in on one. That will tell you all you need to know. Staying away from chop is fine. Staying away from a monster trend is idiocy. What he did yesterday tells you all you need to know about what a rank amateur he is. One of the reasons I recommend TradeGuider is that the rules were written by Tom Williams, a former syndicate trader who's now around 80 years old. This guy was part of a group manipulating the markets back in the day, and knows his stuff way better than 99% of the other "educators" out there. The guy is old now and is just teaching to give back, not because he needs or wants your money. That's the type of person you should be learning from. One thing that will never change about the market is price and volume, and the relationship between them. Price moves in a certain way because it has to, and once you figure out what that way is, it becomes a lot easier to make money. The big players have to do certain things in certain ways in the market to make money, and VSA helps you to spot their footprints and figure out which way they are heading. Trading is essentially nothing more than that - figuring out which way the big money is going, and joining them. VSA is based on Wyckoff's work, stuff that worked 100 years ago and still works today. It's one of the tools that I use, although not the only one. Also check out some webinars on Market Profile. It takes a little time to figure out how that stuff works, but it's worth it.
I agree he dropped the ball yesterday, and I agree that, so far, his style of trading might not suit me in the long run because he misses out on big moves. However, he manages to make money (for himself) from trading and has been doing it for 14 years or more (if I recall correctly). So he's not an amateur. He trades professionally. It is just that he seems limited to specific setups which is bad for someone like me who can't afford to miss out on big moves like yesterday because I'm not trading dozens and dozens of contracts. Should be interesting to see if his focus on more profitable trades than he has taken this summer pans out. I've got another month left before deciding whether to renew again.
He didn't really drop the ball - that's just how he trades. He never catches that big trend. Catching big moves is what all profitable trading is really all about, because that's where all the money is. Actually, he TEACHES and trades for a living. And he makes more money from his teaching. But yes, he is consistently profitable. Look, I have seen quite a few educators out there... they all make a bit of money here and there, but they always have flaws in their game. Do you really want to learn that way and spend money on that? You have a decent enough shot of figuring things out on your own - who knows, you might come up with a better method than what these guys are teaching if you work at it. You're obviously smart enough to reject what he's doing already, so I think your gut is telling you all you need to know on this front. There have been some huge moves in the past 5 months. Lots of days where the market has just run like absolutely crazy. If he hasn't been catching those days up to now, what makes you think he's going to get any better?