August 31

This was a disaster sim-trade from the first click of the mouse. I am so accustomed to the high-volume stocks and ETF's that when I pulled up a chart of PCLN, it never occured to me to check the spread... bad idea. This trade was down 28 cents immediately upon hitting buy. Then, it moved away from me... I just couldn't read it on a candle by candle basis. Stepping back and looking at it from a longer trend perspective, it made sense: trend, reversal, consolidation, etc. But it sure was a squirrely thing on a tighter timeframe.

This was not a clean trade and the chart and price action indicated that this was not coming back to my entry, so I did take an additional trade to average my price down on the overall position. The price came back and I scaled out one of the trades with a gain and held the other in case the trend continued. This was near EOD and it appeared that price would not go substantially higher, so I closed the remaining portion, also for a gain. Chart lines indicate average of the two entries and the two exits.

August 30th

All nice clean trades with no adding in order to average a better price. Some days I feel tied into movement such that I'm a half-step ahead of the market. It is surreal when that happens...

I had two well-timed exits just as reversals were about to take place and then three exits far too soon. Mostly pretty good entry spots on all.

Also, it appears my Friday afternoon suspicions about a Monday breakdown came to pass. Although, in a range market, it isn't a stretch to make such a prediction and have it come true!

I had a day-job appointment at 2:00 so I closed down the platform at 1:00 pm.

Week-end Thought

"...one casting director took my picture and threw it back at me and said, 'nobody wants a five-foot character actor!' and I was like, whoa. People love to tell you you can't do it. If you have a feeling inside you really want to do something, you go do it. You do it, that's all there is to it."

--Danny DeVito

August 27th

I had the last 25 minutes of the session to look at the market. I took a look at TNA and found an S/R line to scalp short with 12 mins to go. I was looking for a profit-taking breakdown toward the 7 EMA. It didn't come in that candle, or the next for that matter. In the last few minutes of the day, I decide to cover with a small gain. Just about a minute later, it did break down to the moving average. With some patience, I might have doubled my gain on this simulated trade.

The closing doji on the 15-minute chart of TNA looks interesting for Monday's open, though much headline pressure could arise between now and then. I'm thinking a monday morning breakdown, but who knows!

August 26

I'm back to the computer for about 20 minutes which gives me enough time to close out my GENZ overnight trade and grab some lunch before my next customer appointment. It is unlikely I'll get to see the markets again today before the close, considering I have two more day-jobs booked.

Price is King: Reading the Tape

Linda Bradford-Raschke is a trader well known for her stock market educational endeavors. Hers was the first of the "Saturday Seminars" I listened to at Ino.Com. They used to have a few free seminars from many years ago that were free of charge. When her name appears every now and then, I take notice and am interested in what she writes or says. Don Miller mentions her once in a while and has actually done some presentations with her.
I've had this on my Favorites List for a long time and refer to it every few months or so. The following is Linda Bradford-Raschke on the subject of Tape Reading. As my skills slowly advance, parts of it become more relevant... last night as I was re-reading it, her mention of reference points caught my eye, as did some other things. I highlighted in red what caught my eye. The copy can be found at www.traderslog.com/ .

Tape Reading
Posted By: Linda Bradford Raschke

By Linda Bradford Raschke

Sometimes it is nice to reexamine a simple concept when there appears to be overwhelming volatility in the markets. Mechanical systems and patterns are helpful and even necessary for the structure they impose in organizing data, but even Richard Dennis in his original course discussed ways to “anticipate” entry signals, exit trades early, and filter out “bad” trades.

Learn to follow the market’s price action and read the signals it gives. This can become a strict discipline in itself and the result will be greater confidence that a trade is or is not working.

Tape Reading

“Trading technique is simply the ability, through study, observation, and experience, to recognize the signals in each of the several phases of market movement.”
- George Douglas Taylor

Tape reading long ago referred to the practice of studying an old-fashioned ticker tape and monitoring prices, volume, and fluctuations in order to predict the immediate trend. (It does not mean you have to have the ability to read the prices scrolling across the bottom of the screen on CNBC!) Tape reading is nothing more than monitoring the current price action and asking: Is the price going up or down right now? It has nothing to do with technical analysis and everything to do with keeping an open mind.

Even the most novice observer has the ability to see that prices are moving higher or lower at any particular moment or, for that matter, when prices seem to be going nowhere or sideways. (Markets do not always have to be going somewhere!) It is also fairly easy to watch a price go up and then tell when it stops going up – even if it turns out to be only a momentary pause.

I’ve known hundreds of professional traders throughout my career. I don’t want to disappoint you, but I know of only two who were able to make a steady living for themselves with a mechanical system. (I am not counting the well-capitalized CTA’s who are running a money-management program with “OPM” – other people’s money.) All those other traders used some type of discretion that invariably involved watching the price action at some moment – even if just to move a stop up or down.

If you can learn to follow the price action, you will be two steps ahead of the game because price is faster than any derivative. You may have heard the saying, “The only truth is the current PRICE.” Your job as a trader will become ten times easier once you accept this. This means ignoring news, opinions, and personal biases.

Watching price action can actually be very confusing if you go about it like a ship without her sails up in an ocean squall. You will get tossed back and forth with no sense of direction and no sense of purpose. There are two main tricks to monitoring price action. The first is to watch the price relative to another “reference point.” This is why many traders use a “pivot point” – and it works! It is the easiest way to tell if the market is moving closer to or further away from a particular point. This is also why it is often easier to get a “feel” for the market once you put a position on – your “reference” point tends to be your entry price.

Some reference points, such as a swing high or the day’s opening price, will have much more significance than those points involving some type of calculation. (Some numbers might have special meaning for those who calculate them, and who am I to argue if they work.) I like to concentrate on pivot points that the whole market can see. To sum up so far, when watching price, we want to know the following: how fast, how far, and in which direction. It takes two points to measure these things. One will always be the current price, the other a pivot point.

* Do not watch price for the sake of watching price. Watch price with the intent to do something or to anticipate a certain response!

Responses

“The study of responses … is an almost unerring guide to the technical position of the market.”
- Rollo Tape (Richard Wyckoff), 1910

The second main trick to monitoring price action is to watch for the market’s response to a particular condition … in other words, anticipating a particular behavior. For example, if the market has been at a very low volatility point and just begins breaking out of it’s particular trading range, one might anticipate that the price would begin to accelerate in an impulsive manner and not run into immediate resistance. Or, on a directional play, if the price is moving in an impulsive manner in a trending market and then pauses to catch its breath on a mild reaction, one would expect it then to continue on in the direction of the trend. When there is a particular behavior to anticipate, it is easier to watch the price to see if it acts according to one’s expectations.

Is the market failing to break on bad news? Is it finding support after a series of advances? Does it run into an invisible overhead wall and sharply back off, implying strong resistance? These are market responses to certain conditions. Tape reading is like playing a tennis game and watching to see how your opponent hits the ball back.

Part of studying price behavior and gaining experience as a trader is gradually learning what actions to anticipate. Then you must learn what the market’s most probable response or outcome should be. It will always be easier to anticipate an event or response which happens 70% of the time than to be looking for that which happens only 30% of the time.

However, it can also be a profitable strategy to recognize when a given signal or expected response is failing. Sometimes a failed signal can be more profitable than the normal expected response. For example, a classic failed response might be a scenario wherein price was consolidating in a pattern of higher lows and lower highs – a classic triangle pattern. One would expect a breakout from a chart formation to have some follow-through. However, if price only penetrates the lows by a small amount and then turns upward, picking up volume and momentum as it goes, and comes out the upside, a very significant reversal has probably occurred and there may be much more price advance to unfold.

One last trick to watching price action is to learn to think in terms of “handles,” or levels. Think of the S&P’s as reaching for the “1110″ handle, or the “low 1060′s” as a level. Each ten points is a defined level. Use big round numbers as reference points for levels. It doesn’t mean that you are placing orders at those numbers. It is just a simple way of organizing data that professional traders practice subconsciously.

Pivot Points

An astute trader will always have the previous day’s close in his head. He also knows the previous day’s high and low (prices he would have liked to have bought and sold but probably didn’t). He also knows the opening price, for that tells if the buyers or sellers are in control for the day.

The previous day’s high and low and today’s open have very strong psychological implications and are the most important “pivot points” to recognize. By concentrating on price action near these points, we can eliminate much of the hard work in tape reading. Many times the market will let us know right away if this is going to be an area of support or resistance.

The previous day’s high and low tend to overlap in congestion areas. Look to exit profitable trades immediately at these points in sideways markets. In trending markets, the price will run through these points a bit before pausing. When the market is strongly trending, the opening price becomes the most important.

If we are watching a high, low, or opening price as a pivot point, we are watching to see whether there is any impulsive price action as the market approaches the point or moves further away from it. What is “impulsive action?” I like to call it a “whoosh.” The market moves rapidly as if just coming to life for the first time. It is usually a series of ticks in one direction without a tick in the opposite direction. The market is tipping its hand. A sequence like this tends to consolidate or pause a bit before being followed by more impulsive action. This is quite easy to see in a market like the S&P’s if you look on a short-term time frame. If we quantify these “whooshes,” which we can do in several ways, we will see that the market tends to have continuation moves at least 2/3′s of the time. Not bad for arriving at a “positive expectation” simply by following price action.

In conclusion, tape reading is not watching every trade that passes by (a monotonous task) but rather keeping an eye out for unusual impulsive action, unusual volume, or just observing the way the price trades at significant levels. Each price swing has forecasting value as to what the next most immediate move should be. We then follow the price action to see if that move plays out.

Tape reading is at the heart of swing trading. When looking for short-term moves, price-based derivative indicators will be too late to be of value. Ultimately, traders should feel a great sense of freedom when they can rely on simple charts to formulate a game plan or a conceptual roadmap in their heads – and the movement on the tape to tell them their game plan is correct.


For those of you who study what Scott Farnham does at http://www.bankrobbertrades.blogspot.com/ as I do, you will note that he pays attention to Reference Points. He calls them "Acceleration Points" and marks them on his chart of the QQQQ when he starts the day and as I understand it, at points through the day as they emerge to him. In the past I've heard traders on CNBC refer to Pivot Points in their commentary. The old floor traders used them faithfully before the advent of the digital age. You can see many references to Pivot Points at Dr. Steenbarger's outstanding blog, http://www.traderfeed.blogspot.com/ .
The portion of the essay I highlighted under her sub-heading "Responses" caught my eye because it is there where the hard work resides for traders in training... This can only be achieved by watching a MOVING MARKET over long periods of time. Time spent in pursuit of one's craft cannot be denied if one is to achieve success. This is why it is so difficult for a person to learn to trade, in my opinion. It takes hundreds, even thousands of hours of study of a moving market before one can learn to become one with momo. It is also why I practice-trade with a Simulated Platform rather than real money during this time. There are very long odds against a novice trader keeping his/her money while trading over that long stretch of time.

August 25th

This is an overnight sim-trade short in GENZ. It continued to rise after I took the trade but I intentionally didn't add to the trade to average a better price. I believe it will come back and continue to drop. I'm currently down on the trade about ten cents at the closing price.

I won't be here at the open tomorrow because of a work commitment but let's assume I will close it out sometime after it goes positive... no price target. The cover would likely take place around 10:00 o'clock. I have a good feeling about it...

If it moves against me, we'll let it go and see what happens...

August 24th

I had only a few minutes at this morning's open to watch the market. CAT is moving so I saw an opportunity to play a continuation move to the down side. I seemed to have caught it at a S/R area and it isn't moving so I exited, thinking a reversal is at hand.


I am leaving, getting the opportunity to spend the day with one of my favorite people, my sister M. She works two jobs and I am also quite busy, so this is a day which doesn't come too often. People always come first, then money and posessions...

A fruitful day to all.

August 23 - EOD

End of day in TNA... I was watching now and then as I did some work at my desk. I saw the big volume spike as TNA dropped at 3:35 pm and went long with two paper-trades. This felt like the right call but definitely not more than a scalp, considering the risk associated with trading against a strong trend. I felt the momo stop and got out just as the market turned back down. At some point, I hope to be able to trust my judgement that the move I'm in has completed and make a play the opposite way. It sure would have worked well here...

FYI - Did a "bonehead" move by clicking the MELI line on my trading platform when I was trying to go long on TNA at the 3:20 pm breakdown. I quickly got out for a 1 cent loss plus commissions. I thought I had TNA ready to go on the platform but hadn't even typed in the ticker yet! Because of this error, I missed my chance to play the 28 cent reversion to mean. It was a nice set-up: right after a long red candle coupled with increasing volume- not to mention I really love to scalp the retracement move when I see ramping volume accompanied by the candle ending at its low or high.

Focus, focus, focus...?!

With the inderstanding that some trade ideas should not be executed:

The bright white line at the 3:55 pm candle is the spot where I had a thought to go long... yikes! I was really not comfortable about it because of the prevailing downward trend and the end of day coming. I only marked the chart to see what would happen. I wonder if that is a sign that I'm polishing my self-discipline skills... or just dumb luck that I didn't take the "whim" trade that seems to punish me every now and then? I'll ponder that in a few minutes over a cold beer :-)

August 23

I just got back from a day-job appt. and found my MELI overnight trade in the money. I closed it out without regard for price, etc.

I intend to look at the markets for the rest of the day as I do some admin work for the day-job.

A couple of observations...

1. This trade was down at the open by roughly the same amount as it was up when I closed it out. Trusting one's instincts is important, but I wonder if this was walking the high-wire without a net. Had this been real-money, I wonder what my reaction would have been? Paper-trading IS different than real money in that sense. Although, on an overnight hold/ swing-trade, I would have mitigated risk with an appropriate position size.

2. I missed the ugly open, but I also missed the best pricing at the lows of the day just after a flood of short sellers got out en masse at 10:45 & 10:50. (The first wave of covering occurred at 10:20 am.)

3. The spread hurts on this stock, considering what I am used to practicing on: TNA, POT, MOS, etc.

August 20th - Friday

I had only the last 30-40 minutes to see the markets after the day-job completed. I saw the long run-up in Meli with very little profit-taking at EOD. So, I decided to take a swing-trade short and see what happens for Monday. Work will keep me busy in the morning and I won't be able to follow the stock until the afternoon. It seems like a good spot to get a quick gain from any morning breakdown.

Adjustment

There has been an adjustment to the blog. I no longer will post the "Blogs I Follow" area for blogs which sell anything or promote with advertisements.
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I have nothing against promotion or commerce. It is just that I choose not to participate in that part of it. From the beginning, I have chosen not to run advertisements here. Removal of some of the "Blogs I Follow" that have a profit motive is a natural extension of that, despite the fact that a lot of value may be received from visiting those sites.
When I see something of value at one of the sites I've removed or from other sites I visit, I won't hesitate to repost here and explicitly credit the source.

August 19th - End of Day

I got back from my emergency call at about 3:40pm and had a chance to monitor my absentee paper-trade. Well, it got pretty ugly, with the price climbing to 36.42... but it was out of sight, out of mind! Price was dropping when I signed back on and I closed it out where I felt downward momo had ceased. It turned out to be very close to the bottom of the final move of the day. I took a loss on the trade and therefore, a loss on the day. I can't remember the last time I took a loss on the day and very rarely take a loss on a trade. And that is a big problem. It is unnatural to not take losses. Clearly some of my sim-trades are good solid trades. But many are not, with losses allowed to run then additional trades taken to average a better price... a dangerous maneuver. The fact that it works in my favor so often masks the risk of such an approach. We have had a range market recently and it is quite forgiving. This approach during a strong trend day followed by another will lead to ruination.
I need to set stops.
My goal going forward is to rack up more losses. Only this will help me advance my skills.

Trade on... and gotta leave!

Just got an emergency call from a long-time customer and have to leave... contemplating just leaving the trade to see what happens... Short in TNA but looks like it is bouncing... got a terrible entry at the one of the worst spots of the day to short. Lousy read on this one and poor execution by not stopping it out.
We'll see what happens... it has been REALLY weak all day and going short seemed like the percentage play...

Saw it, Liked it, Reprinted it!

I saw this at Don Miller's site and liked it a lot. Decided to post it here in case anyone missed it over there.
This is an eye-opener for new traders: what we are up against when we are training for trading the markets. Also, reinforces why I do not use real money while learning the basics...
Its about a twenty minute video but worth the time. Something to think about when you are struggling with setting stop losses, as I do. Just cut and paste in your browser if clicking the link doesn't work...

http://www.ted.com/talks/laurie_santos.html

August 18th

I had most of the day to study and paper-trade. A mix of good reads and some good luck.

Some of my best ideas went down as lines on the chart and not paper-trades. It's all the same, whether executed or not. Practice, practice, practice...

There's nothing, short of spending time with my wife on a motorcycle, that I would rather be doing. I truly love this stuff. The thought of doing this for a living brings a smile to my face.

There are notable deficiencies with my method, however. So, I will continue my sim-trading until I get it right.

August 17

No time to comment on the chart.

August 16

Around lunch time, I looked in on the markets for a couple hours. TNA was moving so I focused my attention there.
I was wrong on my first read, going short at the $36.15 S/R level. TNA continued its rise and instead of stopping out, I added to the short at the $36.62 S/R area.
Well, wrong read again... up it went. In the $36.90 area, it seemed that momo had waned and I then hit it harder with three more trades short. I then waited, unwilling to short anymore. After a protracted consolidation area, the break came. Being late for two customer estimates, I scaled out into the initial strength of the move.
The move continued for a while after I was gone, bottoming out about an hour and ten minutes later at $35.44.
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August 13th Friday

No trades, no time in front of the computer at all. Busy with the day-job...

August 12th

I got a chance to watch the market for the last hour and made two simulation trades in TNA. Mostly I watched the action, however, with attention to the momentum around critical levels of S/R and the moving averages. Love that volume spike and doji combo at the 3:10 pm candle... great high-percentage short opportunity. I took my two winners out of that downward move.

August 10 & 11

I just returned from my morning day-job appointment to find my multi-day MELI paper-trade position in the black, so I closed it out. I missed the best prices of the day while I was gone...

After a quick bite of lunch, I'm back out for two more customer visits.

Good trading to everyone.

August 8 & 9

I didn't get to put this up last night because I was in a class until after 9:00 pm. So, here is a practice-trade in FCX. I held overnight in anticipation of a breakdown after a pretty substantial run-up.

I closed out with a small winner after missing the lows of the morning session while at my day job.

I am also short MELI on a longer timeframe, considering the big run-up it has had recently.

August 5th - Morning close of overnight paper-trade

Last night I held FCX in a paper-trade short in anticipation of a breakdown. The breakdown took place, gapping lower then dropping from there. I was at Home Depot picking up doors at the open and couldn't be here to close out at the optimal time. I closed the trade after signing on without regard for price action, satisfied that my trade idea was correct. I am on my way back out... to unload the 9 dooors from the truck before it rains then meet Mrs. BlueCollar for lunch. I will return later to watch the markets. No day-job appointments today but tons of errands that must be done during regular business hours. Someday... I'll be able to focus solely on the markets. Until then, the rigors of daily life must be addressed!

August 4th

Here are the two paper-trades in RIG that I took earlier and the short in FCX which remains open. Unfortunately, I hit the "Clear" button to remove the lines from the RIG chart forgetting about my entry/exit lines; hence a bare chart.

I like the short I took in FCX at 74.86... we are bumping against a longer-term resistance area after a nice run from July 19th. On the shorter-term, it is pulling back slightly after a nice run-up from about 10:30am today. I had a chance to exit this at 3:00pm with a $75 paper-gain but held for a bigger breakdown. At EOD I had a chance to get out with a small $35 loss, 3:50pm, but I held for a bigger pullback. We'll see what tomorrow brings... hopefully it will come back into the $74.45 area.

Tuesday August 3rd

No trades today. Very busy with the day-job.
It is one man's observation, but my business is much steadier than last year and I think it bodes well as an economic indicator!?

August 2

No trades. Very busy day-job today.