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Sell signals today on both SPY and DIA at 14:35, both of them Classic sell signals;


SPY signal chart



DIA signal chart



As the market was rallying at 14:35 I waited until it turned down at 14:40, filled at 2310.75. Due to the recent high (to the left) I used a 4 point stop at 2314.75, just above the high. The market rallied up touching off my stop for a 4 point loss, before selling off down to 2305.25, the market only did go up to the level of my stop at 2314.75, before selling off, but that's the way it goes sometimes. After this the market then chopped up and down before rallying up to 2323, currently.


Entry and exit;



These were very emphatic sell signals, the classic type, previously these have been very good, but, not today.

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More on today's action...


Earlier on today I had what I would call a potential buy signal on my indicator for DIA at 16:00. It wasn't traded since I look for categoric double tops or bottoms in my indicator (very clear signals). I view these double tops and bottoms as significant because the indicator is an attempt to revalue an underlying to account for a range of other factors; therefore if one double tops or bottoms, I look at it as if the value is finding either resistance or support, and therefore the price may reverse course and that is where I initiate a trade.


This is the signal on DIA at 16:00 that wasn't strong enough to warrant a trade on it's own;



Since I view double tops/bottoms on my indicator as value resistance areas it makes sense not to limit my perception of the indicator to just these types of formation.


This chart above suggested support was found and validated at 16:00 and in fact the NASDAQ rallied 24 points higher from this point today.


I am a big devotee of market profile / volume profile (volume plotted in profile across price), recent examples of using this are when I suggested the silver market was going terminal in Dr Bubb's $50-ish Peak in Silver Coming? Hunting the Top thread, and more recently where I suggested a dollar bottom (see post 190). I do have the volume profile on my charts but I really haven't used it to any significant degree for my intraday trading so far.


Volume profile highlights the most significant price levels where most of the trade took place,the levels with the least volume are therefore less significant. The price level where most of the trade took place is called the Point Of Control (POC). I chart the market profile showing the profile itself, the POC, but also the band of volume showing where 68% of the day's trade took place (known as the value area). I use this as it's 2/3rds and therefore accounts for the significant price range of the day.


Example E-Mini NASDAQ chart showing market (volume) profile;



The POC is the thicker blue line intersecting the price. The thin grey line above, and below the POC section off the price range where 68% of the volume traded today.



Now looking again at today's action, but with the previous two days POC and the 68% value area high and low is quite interesting. The solid red lines are the previous days 68% value area high and low, along with the previous days POC. The dotted red lines are the same but from the day prior to that. The green line is the point at which my indicator suggested a potential buy (the bounce off the right hand end of the support line on the indicator chart).



What is clear is that these volume profile levels are significant, both the POC and the 68% value area high and low. Using these as areas of potential support/resistance we can see that the 68% value area low from 2 days ago acted as support that the market tried to breach three times, but did so only fleetingly. The next test at 15:00 shows that the POC from 2 days prior then also acted as support, with the price unable to reach the 68% value area low tested previously. This therefore meant the that POC from 2 days ago was the level to watch. Whilst the signal I had on DIA was not significant to trade on it's own, if I'd been using the volume profile in this manner I would have seen that once again, at 15:56 the POC from 2 days ago was tested and acted as valid support for the second time. If I also align this with the support level found on my indicator chart at 2, it could have, with all this information, been viewed as a valid signal. It makes a great deal of sense to align the market profile information to the information my indicator is giving me. In this way I may be able to form a more powerful trading system. In this way I can make use of information from my indicator that, on it's own, may not be sufficient to base a trade on.


So from now on I will be marking up my charts with these levels, and especially looking out for situations throughout the day where the support/resistance levels on market profile and my indicator align with each other.



Article explaining Market Profile

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Buy signal on SPY at 15:45, Mid range double bottom;



Went long at 2333.75, market rallied up to 2338.50.


Then I had Classic sell signals on both SPY and DIA;


DIA Classic sell signal at 16:10;



Closed out position at 2337 for a 3.25 point gain, then went short immediately, filled at 2336.75. The market then spent 3 hours chopping before selling off down to 2329.75, moved my stop to 2337.50, just above the recent high. I was looking for a further sell-off, but it didn't come, market started rallying back up again, moved my stop to 2335.50, leaving a couple of points to allow the market another potential opportunity to sell-off but by that time there was only 30 mins to go, it was really too late in the day. Market hit my stop for a 1.25 point gain.


Long entry (green), reversal to short (red) and exit (green) times;



The high from yesterday (at 2331) is shown as the red/grey horizontal line through the middle of the chart, had the price reacted to that level, it would have been a good indication to get out, but as it went through, the suggestion was that the move would continue. Perhaps after it went through I should have moved my stop to the 2331 level.


20/20 hindsight shows the time to get out was after the sell-off down to 2329.75. A gain of 4.5 points for the day, not too bad considering the market was in a pretty tight range for most of the day.


The classic sell signal was really a triple top, so perhaps I was expecting a little too much from that. During the second trade there were also further sell signals on my indicator charts for SPY at 17:55 and 19:45. Interestingly these would have made good points to add to the short position I had, so I'll keep this in mind for the future, once I have more experience and am confident trading bigger positions.


Something I keep a close eye on during trading is the time and sales on E-Mini S&P futures; getting an idea of the size of trades on both sides of the market can be quite useful;



This shows the trades and number of contracts as they are being traded live. I took this shot as you can see two very large sales, one of 1890 contracts, the other of 1886. Big size into the market, especially when you consider the face value of each contract is $66,500. Those sales occurred right at the top in the S&P futures today. It's well worth keeping an eye out for large ones like this. You can also sometimes see larger size come in as a move develops, or towards the end of a move on high volume on the opposing side of the market. I'm continuing to study this whilst trading along with the bid/ask ladder, it's all useful market information (I'll post something on the bid/ask ladder in the future). I tend to filter out the smaller (retail) trades so I can only see what the pros are up to, I look at trades of 100 lots upwards.


I mentioned before on my journal that I use hypnosis regularly. Using hypnosis was one of the turning points for me and today I received a new hypnosis program from James Schmelter of http://www.hypnotictapes.com/. The program is specifically tailored to trading, I'm looking forward to working with it.


Hypnosis is






the Future

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I've been looking at some day session data on the NASDAQ 100 in order to gauge the frequency and range of points moves.


Using data from 1st May 2009 to 27th May 2011 I looked at daily points ranges (for the day session), and the frequency of different ranges during this time period, and charted them.





This shows that there are very few days where the range is 10 points or less, and that there are very few high range days, which is what you would expect to see.


The most common points range is 20 points. 20 point range days occurred on 31 separate trading days for the time period charted.


It's appears from the chart that the bulk of points ranges for the day session appear to be between 14 and 29 points.


Looking at it from the perspective of a bell curve, the most common points ranges are between 12 and 31, these occur 68% of the time. That is one standard deviation using the data shown. Day sessions with ranges above or below that are therefore less common, found only 32% of the time.


Of course there are many variables here such as the selection of data used. I used from 1st May 2009 to remove the volatility from the tail end of the crash, that bottomed in March 2009 (the volatility would skew the data). Periods like that are exceptional. Another factor is that clearly as markets rise in value their day session range would tend to extend also, and as some of the dataset was from when the NASDAQ 100 was several hundred point lower, this is likely to have skewed the end result to a degree. This is likely to mean that the 0 to 1 standard deviation range of 12 to 31 may actually be around 14 - 33, based on the present valuation.


Volatility is also something that needs to be examined, and the impact that has on day session ranges. That is something else that can be looked at, at some point.



For the trades I take I also keep stats afterwards of what could have been achieved over the whole move without using a trailing stop, to see the maximum points available from each trade. This is so that over time I can gauge what a reasonable expectation of points might be, for the trades that do particularly well. Looking at the data from the trades I initiated, there were only 4 trades with a possible yield of over 30 points (and that's nearly 100 trades). So that's certainly in line with what I've shown here.


There is an argument to be made for a different approach to stop-loss management here, and that is, if a trades get above a certain number of points, eg towards the 31 figure, the stop should be moved closer to the price, since at that time the case for a larger move is diminished. I may also look at a more dynamic approach such as reducing my trailing stop as a trade gets over 20 points, and gradually reducing it further as it gains more, to keep the trade in line with the bell curve distribution of day session points ranges.


This is with a nod to Niederhoffer - Quantify Quantify Quanfity

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An opportunity loss of 6.5 points today (This is my day job week)

Classic sell signal at 14:40 on SPY



I was held up at work getting away for lunch and missed this one, probably would have been filled at about 2360.75. Market sold off down to 2346.25 then rallied back up and passed 2354.25, so it would have triggered my 8 point trailing stop loss for a gain of 6.5 points. In fact there was also a buy signal at 15:30 (2351), that would have closed the first trade for a gain of 9.75, the reversal of the trade would have been stopped out at 2347.75 for a 3.25 point loss, so the end result would have been the same anyway, a 6.5 point gain.


Sell, and buy signal, on NASDAQ


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A fantastic start to June.


Thankfully I managed to get away for lunch on time for the US market open today!


Sell signal for my indicator working on SPY at 14:35;



The market was in rally mode from the open so I waited until the first black (downward) Heikin Ashi candle on my chart to enter. Filled at 2372.25 (at 14:44), then the market started selling off, and I had to return to work.


I had a break at 17:15 and saw that the market had gone down as low as 2341, it was around 2343 at the time. I considered closing it, as it was already a great gain however I always want to let my profits run and have the market decide when a trade is over (unless I get a signal in the opposing direction). Also, as the selling looked to be quite persistent I thought there could be more downside. I finished work at 18:00 and literally a few seconds later got stopped out by my 8 point trailing stop for a 23.5 point gain.


Looking back at the situation now, after the move down to 2341, the market retraced back up to only 2350, just 1 point beyond my trailing stop, then proceeded to sell-off some more, down to as low as 2328.5, with still an hour to go. A great trade, perhaps slightly unfortunate in getting stopped out before the move continued but these are the types of trade my trailing stop is designed to latch onto.


Short entry (red line) and trailing stop exit (green line);








EDIT - end of day chart;



That was a 50.5 point move from where I entered today, shame I got knocked out at the middle for the sake of a point...

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Sell signal on QQQ at 15:10 - Standard Double Top;



Filled at 2330.50, market rallied sharply taking me out at 2333.75 for a 3.25 point loss.


There was also a buy signal at 16:45 on DIA, I was at work for that one, thankfully, as that one would have been stopped out for a 3.25 point loss.

DIA buy signal;




Entry and exit on trade (and green line showing point second signal was generated);


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A further sell signal at 19:20 on DIA;



I was late spotting this, when I came back to my screen the NASDAQ was at 2326.75, a better price than when the signal was generated. Filled at that price at 19:43, stopped out 3 minutes later at 2329.25 for a 2.5 point loss. I'd opted to use the same stop out point that I would have had I got into the trade at the original signal point of 19:20, so as not to deviate from the system.


Entry and exit


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I'm off to Paris for a few days with my girlfriend. Looking forward to it. It'll be nice to relax for a few days.




But I'm hoping I get back in time for the US market open on monday, fingers crossed, as next week is my trading week.

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The flight was a little delayed so I didn't make it back until later. There was a buy signal on SPY at 16:05 (2294 on the NASDAQ futures) missed due to this, the result would have been a 0.75 point loss as there was then a sell signal at 17:20, that would have been the exit from the missed trade. It was of course a fresh sell signal...



Shorted the market at 2293.25, the market had been in a tight range so far at this point. After selling off down to 2289.50 I moved my stop to close to breakeven; 2293.50, thinking the probability was for a continuation of the sideways chop (I also had to leave the screens for a few minutes), came back to see the market had rallied back up to as high as 2296.50, triggering my stop in the meantime for a 0.25 point loss.


Later there was a standard double bottom buy signal at 18:50 on DIA;



This one occurred whilst I was away on a break for my evening meal whilst the NASDAQ was at 2284 (I do have to eat sometimes), spotted on return to my desk, and as I was very jaded due to all the traveling I decided to switch the screens off for the night. I now see there was a sell signal at 19:30 on SPY that would have exited the missed signal for a 1.5 point gain and got me back short again, that in turn would have led to a 5 point gain, as the market sold-off some following 19:30. An opportunity loss of 6.5 points on those last two signals, nothing major, thankfully there was no huge move missed...


Sell signal on SPY at 19:30






Entry and exit on scratched trade;


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Sell signal on QQQ at 15:25, standard sell signal;



Filled at 2281.50, not a good entry for today, stopped out 11 minutes later for 3 point loss.


Entry and exit;


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Buy signal on QQQ at 15:40;



Filled at 2260.50. Prior to this the market had rallied from the open, up to yesterday's low of 2268.25, before selling off to today's pre-market low of 2255.50. Following the entry the market rallied up to 2267, before selling off. As this was the second time the market failed at yesterday's low, I moved my stop to breakeven, then after a further sell-off I was stopped out for a flat trade.


Entry and exit;


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Legend terminology;



Value Area High - VAH is the highest price in the Value Area and is often perceived as an area of support or resistance.



Point of Control - The Point of Control, commonly abbreviated as POC, is a Market Profile term which describes the price level where the most volume was traded



Value Area Low - VAL is the lowest price in the Value Area and, like the VAH is also perceived as an area of support or resistance.



For further information see Article explaining Market Profile

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NASDAQ futures;




The NASDAQ is currently at 2341.75, within a potential area of support between 2341 and 2345, according to the volume profile. Shown in the lower section is both Money Flow Index (MFI) and Disparity index (DI). MFI is at a low level similar to previous points where the market has stopped declining and started rallying. 2341 will need to hold in order to suggest a potential low.




S&P futures;



The picture is different for the S&P. The S&P is currently at 1270.50, within a potential area of support much lower, between 1242 and 1248, according to the volume profile. However MFI is at a very low level, again similar to previous points where the market has stopped declining and started rallying.

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Standard sell signal at 15:55 on SPY;



Filled at 2253.25, market rallied a few points before selling off down to as low as 2250.25.


Entry and exit;



Yesterday's Point Of Control provided resistance and as price failed to break lower I moved my stop to 2254. Market rallied hitting my stop for a 0.75 point loss.



For an explanation of legend and terminology see post 239

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Standard sell signal at 18:15 on QQQ;



Filled at 2259, market chopped sideways for a while before selling down to 2257.50, moved my stop to 2260.25, market rallied up to that level taking me out for a 1.25 point loss.


Entry and exit;





For an explanation of legend and terminology see post 239

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Classic buy signal at 16:15 on DIA;



Filled at 2223. The market rallied up to 2231 but look a bit tepid, it wasn't a convincing rally, well it wasn't as convincing as the prior sell-off, that's for sure. Due to this I moved my fixed stop to 2227. The market then sold off, hitting my stop for a 4 point gain.


Entry and exit;




There was also a Classic buy signal on QQQ at 19:00, however I missed the entry due to a lack of concentration, I've been a bit jaded last couple of days - lacking a good night's sleep;




And of course the market is now higher by 10 points.


Entry point for missed signal;





For an explanation of legend and terminology see post 239

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I'm currently looking at switching my data sources that are the inputs for my indicators. Currently it runs using data from ETFs but due to an update with my platform provider ThinkorSwim, it looks as though I may be able to switch to using futures data rather than ETFs, and that ought to make for a more accurate indicator, since ETF's suffer from tracking error/cost of carry issues.

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Do you think you could earn a living by trading, using your system. How much capital would you need to start with?


Yes, that's what I'm finding. I keep a lot of statistics about my trades and the system.




I haven't updated it with this week's figures yet. What this shows is the potential for the system. That is, the results of all the signals using my indicator using my trading strategy. What I find very interesting is that for the last three months it has pulled approximately the same amount of points per month. So, so far it's profitable and consistent. I use my system to trade the E-mini NASDAQ futures, and at the moment I have rearranged my work hours so every other week I trade full time. So far the system has generated over 300 points in 3 months. Now I have not gained the same amount of points since I am only trading every other week, and therefore can't trade all the signals, but it's important for me to track the system (the indicator and the trading strategy) so I can check how it performs. It could be used to trade any of the stock index futures. I use the E-Mini NASDAQ since it's the smallest contract ($20 per point) therefore a great one to trade the system on. One of the great aspects of trading as a business is that, it is scalable. So I can trade it for a few months to check the consistency of both my indicator and strategy and if it continues to be consistent with relatively small drawdown periods, I can trade a larger number of contracts.


Capital to start with - well the CME margin requirements vary for different index futures. The E-Mini NASDAQ is $3500 per contract. I heard from a broker that you would want maybe 1.5 to 2 times the margin requirements per contract traded.


So if the consistency of the system continues at approx 100 points per month, if you traded it with 4 contracts that would equate to $96,000 per year. You have to also factor commissions in, I pay $6 per round trip right now. So let's say you were trading 4 contracts, 30 trades per month, that would be $8,640 per year in commissions (although I would switch to a cheaper broker before I start trading bigger size.)


I would use $10,000 per contract in my trading account to be safe, so for 4 contracts $40,000. I am quite conservative with risk. There are some brokers around (bucket shops) that are allowing people to trade with margins of only $500 per contract, a recipe for disaster. I post on another trading forum www.bigmiketrading.com and a guy was posting who had a $100K account but he was trading 100 E-Mini S&P futures contracts at a time, the face value of each contract is $63,450. Thankfully other posters were warning him how stupid he was being. What I've found is that futures trading does attract people who have a gambling mentality and the bucket shops take full advantage of these people. There is a whole industry based around selling people a dream that you can get rich trading futures, and others selling indicators, trading systems, courses, seminars etc who also capitalise on this too. There is a quote I read, "It's the hardest way to make an easy living" and I would say that is certainly true. On bigmiketrading there are some that treat trading as some sort of fun game to play. It's not a game, it's a business. There are statistics that say something like 90% of futures traders lose money, and it's not at all surprising when you see what sort of people it attracts. I've put an immense amount of work into what I'm doing, you only read a little part of what I'm doing here on this journal. It's a huge challenge, but I am loving it.


Also, some may have noted I don't refer to $ made or lost per trade in this journal. The reason for this is that I have heard from a number of sources that it is important to detach yourself from the value of the money, and I certainly find this helps a lot.


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I've been looking at points gained according to the time signals were generated on my indicator;



This suggests that the further on into the day session, typically there are less points available. This makes sense since most of the moves would happen earlier, rather than later.


The next chart shows the results of all the signals, this time including the losing trades;





This time the trend line is now flat, suggesting that there is no bias in terms of an optimum time to trade my system. However, this is masking the underlying situation.


Whilst there are proportionally more losing trades in the early part of the day compared to later on, this is balanced out by the fact that of the winning trades, the ones earlier on in the day tend to yield more points. However if we look at all trades after 6pm, there are 28. 16 of these are winning trades, and 12 are losing trades. So 57% are winners after 6 pm, against the system as a whole of 50%. This therefore means that whilst there are proportionally more losing trades than winners before 6pm, the winners yield more, balancing out the system overall.


Since my system doesn't appear to have a time bias, this suggests that it's easier to make winning trades later in the day (as a higher percentage are winners), perhaps there is less competition then. It would be interesting to know if other traders have found this also.

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I also looked at points gained on trades over time;




The trend is up. This is good and means my performance trading the system is improving. There are proportionally more trades during March, as I took March off work to trade full time.




I also had a look at the performance of the system as a whole, that is all of the signals generated up until now;




The trend is flat, this is also good, confirming that so far, the system is consistent.

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Classic buy signal on DIA at 14:35;




It's not clear from the chart here, but when zoomed in, it was a clear buy signal.


I was slightly late getting away for lunch (this is my working week) so I was a couple of minutes late confirming it as a valid signal. This meant I was filled at 2222, whereas I would probably have been filled at 2220.50 had I been right on time for the US market open. The market started rallying so it looked ok anyway. The classic type signals tend to be reliable so I wasn't too bothered that I missed the entry by almost 2 minutes, I then had to return to work. Later I saw that the market had rallied up to 2230, then sold off hitting my trailing stop in the process at 2222 for a flat trade.


Entry and exit;



Once I returned home there was a further signal, a sell signal on SPY at 19:35;



Filled at 2223.75, the market had sold off a few points up to when I put this one on. For some reason as soon as I put this on I had a strong sense that this was a bad trade, it's difficult to put into words, but as a result I moved the stop right down to 2224.25 so as to keep it on but reflect my sense that it was not a good trade. The market then rallied up to 2228.75, taking out my stop in the process for a 0.5 point loss. I am not a discretionary trader and this is far removed from my normal systematic approach. Normally I put a trade on and leave it with the 3.25 point stop, only tightening up the stop to a support or resistance level if the trade is going in a favourable direction. Only on one previous occasion (out of nearly 100 trades) have I done something similar, on the previous occasion I had a sense that the move had ended, and therefore got out. That also proved to be a good decision. The chart for that is here;


Trade from 7th April 2011 - Short entry (red line) discretionary exit (green line)


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