Friday (12/19/2014) was a choppy trading day for sure. As I was reviewing my trades that day, I thought it might be helpful to write a summary of the trades I took and how I managed to pull out 140 ticks in a basically choppy market, probably the most difficult trading day of the week. There were definitely no 100+ tick trades on Friday! I even had one really stinker of a trade. At the end of the day, however, with good trade management, I was able to end on the positive side. I am going to base my review almost exclusively on the megabar charts.
In the summary chart above, I have highlighted my pre-market trades in blue. The day certainly got off to a rocky start as my ATM strategy was not set correctly and I had to quickly exit 2 trades. Those are the 2 trades that have the strikeout through them. I exited those 2 trades quickly even though they would have ended up as break even trades. I have learned through hard experience that it is best to exit quickly when you make an entry mistake rather than hoping the trade will turn out for the best.
As you can see though, by the time the market opened, I was up 29 ticks. Trade 2 was based off the background change to red on the megabar charts. I did think that the market was going to test lower at the open and that’s why I entered the trade off the megabar chart. It didn’t but I was able to hit my profit target 1 (PT1) and take 7 ticks from the trade.
Trade 3 – The market came down and then the chart background turned to green. As my short in trade 2 was taken out, I jumped in long as the first color change after the market opens often produces a good winning trade. PT1 was hit but then I was stopped out for -1 on the runner.
Trade 4 – Price came back down and touched the open. It also hit the half back (HB) yellow line. This is a very common pattern off the opening. Price probes in one direction first (lower here) and then probes in the other direction, then pulls back to HB and then reverses. In addition, a type 2 divergence was showing on the megabar chart (cyan lines). I entered long and had a nice winning trade of 32 ticks.
Trade 5 – This was my big loser for the day. B period opened and pulled back to HB. I had thought that the second red bar was going to turn into an E2 encompassing bar. It didn’t. Since I really thought that prices were going higher, I moved my stops from the normal 12 ticks to 16 ticks which put the stops just under where price pulled back in trade 4. Mistake! I had given back all the 32 ticks from trade 4. I was not a happy camper.
Trade 6 – A few minutes later, price pulled back to the open. This is a classic move and, as expected, the buyers defended the open and price went back up. I actually has a great entry, 2 ticks below the open. The background change to green then confirmed the trade for me. PT1 was hit on the next bar and then I trailed the runner with the cyan SSTs. 30 ticks in all and I had recovered most of what I lost in trade 5.
Trade 7 – This was my big winner for the day. C started off moving down. I could have gone short on the second red background when price went back up and tagged HB. However, since my bias was still long and the open was right below, I passed on the trade. I entered when C created that double bottom. The background change to green on the second part of the double bottom said to me that the buyers were coming back in and I entered. Price had also moved over 70 ticks on the 30 minute bar which is higher than the average range. I figured if nothing else, I would get a pullback that would hit my PT1 and get me into a free trade. It did and, using the SSTs, trailed my runner for a 58 tick trade.
Trade 8 – I took this trade anticipating another E2 encompassing pattern to the long side. It didn’t materialize. Since I bought low on that bar, I was able to keep my risk very small and exited with a small loss of 2 ticks on 2 lots.
Trade 9 – On the failure of trade 8, trade 9 set up with a type 2 divergence. As you can see from the cyan lines, price was cycling lower and the smart momentum was higher. This is a classic type 2 divergence. Plus with the failure of the previous trade long, I felt that price would move lower. The biggest obstacle though was that this was firing off right into the Point of Control on my market profile chart. I entered short, moved PT1 to 1 tick above the Point of Control. That gave me 10 ticks on my first entry. Price then bounced up and down as I expected and I ended up with 1 tick on my runner. Don’t argue with that Point of Control ;-).
Trade 10 – Another type 2 divergence to the long side with a pullback to HB and an E2. 10 ticks before I got stopped out.
At this point, Mike and I started to answer live questions in the room and I stopped trading for the day.
In summary, I had 10 trades, 2 nice winners, 1 bad loser and a couple of false starts. Using the megabar chart, room signals and trade management, I was able to take home 140 ticks on a pretty choppy Friday.
Let me know if you have any questions and I look forward to seeing you in the room on Monday.