Trading Buyer (Seller) Failure: The Lowest Risk / Highest Probability setup

Here is the progression of a position from after hours just now:
4 points profit

Consistency is key (In losses especially). How I use Maximum Favorable Excursion (MFE)

You want SMALL losses. I have a max loss of $40, 1 trade in the chart had -$45 because of slippage. Small losses are quick and easy to forget about. You never want to be stuck in a losing trade / digging yourself a hole. Always cut your losses quick!

MFE stands for Maximum Favorable Excursion. It is a measure of the most profit that COULD have been extracted from a given trade. For example, a position goes 10 points ($200) up from your entry and you end up exiting at 6 points ($120), this results in an MFE of $200 and a DIFFERENCE of $80. The difference is what I care about most when analyzing my results.

Check out this chart from my most recent 20 trades (approx):

I want to stress that I take consistent small losses which are expected in this business. I have a max loss of $40 on a trade. My goal in a position is to be correct on a move and average into the trade with another contract. So I take what I call “attempts”. When I’m getting stopped out for $5, this means the expectation of the move never happened or I got stopped in a quick move back. The thing to realize is that each one of those $5 “attempts” were RISK-FREE after moving my stop and my profit potential was theoretically unlimited.

Remember, keep losses small and try to move your stop to risk-free as soon as possible.

1/31/12 Daily Recap: Trades explained

After running the blog for some time now, I got a sense of what people want to read and find valuable. I also realized what helps me out the most in my trading. People want to see how I analyze the markets and forecast. Then, they want to see that I actually trade the way I’m saying, and that I’m turning a profit (or else they wouldn’t follow). I myself want to know that I’m systematic, performing an intelligent analysis everyday, and trading based on that analysis. Anyways, I’m going to have a market analysis posted every morning pre market or the night before if there’s movement in after hours. At the end of the day, usually the afternoon, I will post a daily recap. This will go over a few positions that I took and how/why I took them. Please let me know if you have any suggestions. Thanks!

1/23/12 Trade results: 5 trades, $285 profit. Trading hard trends and breaker signals

Today I had 5 trades for a profit of $285. I made 1 really big emotional mistake and took a loss of $100 on the trade. The trade should of had a max loss of around $50-$60, but I let my stop get hit at 5 points, which was way out of the way of the initial invalidation point.

This type of a mistake is an amateur mistake that needs to be corrected / never repeated. I will make a video later on discussing how I should have managed that position properly. It will detail the concept of invalidation points and risk elimination upon movement of price in your favor. I did not apply any of those concepts during that trade, big mistake!

1/20/12 Trade results: 4 trades, $45 profit. Using price magnets to trade

Today, vey slow day in the markets. A lot of failed breakouts, tight range, and low volume. This is typical of Fridays, thats why I trade very light Fridays and do not expect much from the markets on tight range days.

I want to show how I use price magnets to trade. I mainly use them as targets for trades because around those levels there is indecision. Look at this chart, and then the following:

The open is a major magnet because it determines whether the instrument is + or - at a certain point in time. I use the open as a target in the above trade.

Here are the trade from today.

Review the past week; your trades, decisions, actions. Take your new knowledge and experience from this past week and get prepared for the next trading week. Most important of all, enjoy the weekend!

1/18/12 Trade results: 4 trades, $85 profit. Trading with the trend

Today I had 4 trades for a profit of $85. The day started late and ended early because I've been studying for an exam most of the time. Because of this, missed a few good signals, but ended the day profitable, so I can't complain. I spent a lot of time on the analysis today, performing it real-time as the markets moved. This helped me SIGNIFICANTLY to know what's going on. I took all longs, which I'm very happy about. I did not look for reversal / tops, just traded with the trend.

Here is a chart with the trades.

1/17/12 Trade Results: 4 trades, $125 profit. How / when to manually exit a "bad" trade

I had 4 trade today for a profit of $125. The last trade I took had a great setup according to my system. I took the trade signal, and it turned into what I consider a "bad" trade. When this happens, I begin the exit process. This allows for emotionless management. When you expect something to happen because of certain things, and that does not occur, you need to exit and not leave things to chance.

Here is the chart that explains how to exit a "bad" trade. It occurs when a signal is taken, but the expectation of momentum is not present.

Institutional Number Rejection and Buyer Failuer Example

Here is a textbook buyer failure at an institutional number example.

The way I use institutional numbers is for profit targets because they act as magnets. For example, if you had a long position from early in AH, your final or farthest profit target would be the institutional number at 2400. Always expect that there will be a battle between bulls and bears at that level (Bears want to keep price below 2400 and bulls want it to breakout above), especially larger traders who hold positions longer term.

Trend Identification Methods- Trend or Range? What to do when.

The most important aspect of trading is analyzing where the market has been and where it is likely to go. The concept of trend is very simple, but psychologically the majority of traders trade against the trend and have a very difficult time buying when the market is going up and selling when its going down because they are always looking for price advantage.

People use various indicators to determine trend. They use this moving average and that bollinger band and this strength index and that pivot point, etc etc. It's ridiculous! THE TREND IS RIGHT IN FRONT OF YOUR EYES. If you look at a chart and can't determine the trend, there is none, its ranging.

In a trend you see Higher Highs / Highers Lows (Uptrend) , Lower Lows / Lower Highs (Downtrend). In a range, you will have a lot of false breakouts and weak invalidation points.

Here is a chart example from today. During a downtrend, SELL. During an uptrend, BUY. During a range, BUY and SELL. (Only range trade certain setups and have very tight stops and conservative targets. I primarily trade SF and BF trade during ranges.)

1/11/12 Trade Results: 1 trade, $100 profit. How to know when a trend ends

I have my first day of class for this semester, so I'm taking the trading day light today. I had 2 signals prior to the one that I took. There were both 5 min trend signals which would have met reasonable targets. I however only took the 3rd signal of the day which was a 123 EOT on the 50 tick that had a larger price structure agreement, Bull Channel - Price @ resistance of bull channel. The entry signal was pin pointed on the 50 tick, taking a 123 short.

The chart below shows all of my reasoning behind the position that was taken, I explain below the chart:

Price structure is a bull channel. The red triangle is the "SELL ZONE" based on the price structure. I use it for targets on longs and look for short opportunities. I entered using the 50 tick, pin pointing my entry (chart below). I take profit at either a price structure zone, significant swing, or dynamic support/resistance; whichever is closer to current price / more conservative. In this case, it was the dynamic support because the next major swing was 2354.25 and the price structure support was around that level as well.

1/10/12 Trade Results: 3 trades, $150 profit

I had 3 positions that I took today. I made it a priority to have reasonable targets in relation to current conditions after seeing situations were I was correct on the initial move but had a target that was unreasonable and eventually being stopped out for break even which is unacceptable of successful traders. I wanted to make sure today that I was picking good signals that had a high probability of a move in their favor, securing the profit quickly and building them over time. I had one HOD trade signals and 2 123 signals. The results were +60, +65, +25; ending with a profit of $150 on the day.

Here is the chart of the trades:

1/9/12 Trade Results: 1 trade, $100 profit

As I mentioned prior, I want to start the year off slow and steady, not making any big mistakes. I narrowed it down to a few setups I watch for, and try to only take those. Today, I missed the breaker entry which would have been a good position. After noticing this, I entered short on the re-entry signal. I had 1 trade for $100.

Market direction, transitions, and highest probability trades during the condition changes

The market can only be moving 3 ways: up, down, or sideways (flat). From each of these directions, it could transition into any other or continue the current direction.

When you start your day, its important to know where the market has been, where it is now, and monitor for where the highest probability is that it will go. I use a chart that I developed to help me recognize what the highest probability positions are during market condition changes and transitions.

Current market condition also means previous structure. For example, market has been up trending since 3am, its 8am now, and we just had a failed reversal to the downside, with the market continuing up; this is an UP to UP.

An UP to UP and DOWN to DOWN means that there was a failed reversal move or horizontal move and the trend is continuing; TREND CONTINUATION.

UP to DOWN is a TREND REVERSAL
FLAT to UP is a BREAKOUT / TREND FORMATION
etc

For each of these transitions there are higher probability trades that others. For example, in and uptrend followed by an uptrend, the higher probability trend is SELLER FAILURE rather than a 123 REVERSAL.

Here are the abbreviations:
BO- Breakout
PB- Pullback
SF- Seller Failure
BF- Buyer Failure
TR- Trading Range
FBO- Failed Breakout

Buyer / Seller Failure Trade Signal- High Probability, Low Risk, High Reward

Here is a video showing how and when I enter BF / SF signals. The signal occurs 0 to 4 times in a day and is very successful if a valid one is taken.

This setup is my lowest risk setup and highest reward. It's important to recognize which ones to take. I use a supporting chart to filter out the higher probability v the lower probability ones. It's all shown in the video! Let me know if you have any questions.

This was the original video on buyer / seller failure explaining the fundamentals and reasoning behind the position:



Here is the video from today, 1/5/12 showing examples of SF signals and how I take them.

1/5/12 Trade Results: 1 trade, $50 profit: New Year's Resolution

At the end of every trading day, you realize what you did wrong, what rules you didn't follow, and how to fix them. The problem is, seldom do these "solutions" become enacted quickly. At the end of the quarter or year, you recognize broader mistakes; for example being impatient or straying from your rules.

This year, I had 2 New Years Resolutions; one personal and one for trading (work). The one for trading was:

Be patient, disciplined, and smart.

Here is the solution (resolution) for each-

Be patient: Patiently wait for price to go into the "trade zones". Patiently wait for the entry signal. Never assume or anticipate anything.

Be disciplined: In 2011 I saw way too many times the situation of being in the money by $100+ and then getting stopped out at break even. I was giving back profits because of greed. For this, I developed Systematic Profit Securitization
Trade 1) +$50 target
Trade 2) +$75 target
Trade 3) +$100 target
Trade 4) 2 contracts, +$50 and +$150

This is an idea of a profit ladder. I will take $50 profit on the first trade of the day, and then progress the targets if I secure the previous target. I cannot step up to the next target level until the previous one is met. At the 4th trade, I trade 2 contracts scaled out. After consistency, I can leverage up to 2 contracts and double the levels.

Be smart: I want to start very slow this year and realize that I have all week to make my money, not just one day or 1 5 minute bar, etc. I want to be smart and put focus on price structure analysis, not firing off trades left and right in non trending environments. Today, I had 1 trade for the profit level of $50. Since the time is noon, I need to stop trading for the day no matter what, even if I had 0 trades.

1/3/12: Morning Prep: Futures Soar; Tough Year Remains for EU

Fundamental:
US up before ISM and Fed

Events today:
ISM @ 10am
FED @ 2pm

Be careful of taking trades around those times

Technical: BULLISH
Longer Term- Bull Channel @ Highs (Resistance)

Nearer Term:
There was a bear channel (flag) on a faster time frame chart with what looks like a break of that pattern to a move at the retest of the highs of the day