Saturday, October 11, 2014

My second trading competition this year

Well I entered my second simulated trading competition this year for fun, this time it was FOREX only, the initial starting balance was $100,000, and it was limited to 75 traders.  I don't comment much about FOREX here on the blog, but a chart is a chart, and the patterns are all the same whether it's stocks, commodities, bonds, or currencies.

The most interesting thing about a trading competition is that there is a beginning and an end, and we don't get to pick the starting line or finish line.  You sign up, and you deal with the hand you are dealt when it begins.  Normally trading is a two front battle, one is the battle with the "market" and two is the battle with the "self", but these competitions are beyond intense because besides the battle with the self and the market you need to pass others on a public "leader board" and at times you are being passed by others and so the pressure to make wise decisions are critical.  It is a truly a three front battle.  Nothing could be more difficult in this business.

The previous competition I entered was futures only, and had slightly different parameters.  There was no limit to the number of traders (it was over 150), it was for one week only, the initial simulated starting balance was $150,000, and there was a max position size of 15 contracts.  At the end of the futures competition I finished on the top five leader board in second place with a profit of $29,206 over those five days.

This time in the FOREX challenge I finished on the top five leader board again but in fourth place with a profit of $33,939 over ten days.

Over $63,000 in profit in three weeks of trading competition, with $100,000 in trading capital for two weeks using FOREX and one week with $150,000 in trading capital trading a max position of 15 contracts using the futures markets is no small feat, but finishing 2nd and then 4th was a greater accomplishment in my opinion.  Now let me just say that the leverage with futures and FOREX is extreme.  If a trader does not know what they are doing they could easily destroy all their trading capital.  The competition I am sure brought out the gambling mentality in many, where they were trading "ALL IN" or max position size with every trade, trying to hit it out of the park, and I would imagine what a full leader board would show would be embarrassing or ugly for many.

What might surprise many to hear this but is true is that I was trading in the FOREX challenge using mostly $20,000-$30,000 in margin per trade.  In the futures challenge trades were 5 lots except for one time.  There are times you want to be trading large, but when you trade large you also lose large.  Always take your losses with your smallest position.  There are times to go jugular, and there was one time I built up a position in the futures challenge with 15 lots, but that was one time the entire week.  The max position size a trader should put on regardless of competition in my strongest opinion is either with the ultimate trade setup, or when you are sitting with a trade that is a winner, where the market is validating your trade, where you are proven right on direction, there is confirmation that what you expect to see on entry is taking place, etc. and you push it.  It is no different than the opposite trader who is getting smoked on a trade, averages down, and gets slammed afterward for their biggest trading loss ever.

Think about this for a second.  Do you want to hire someone to trade for you, who say's they take their losses with their largest position size every single time?  Or do you want to hire the trader to work for you whose losses are always with the smallest position?

Too much attention in my strongest opinion is paid to "entry" and while it is important, it is miniscule in the grand scheme of things.  Money management, risk management, position sizing, and trade management, are all more important than knowing "how do I get in a good trade".  On top of that and most importantly to me is that it is the "exit" that determines how well or how poor you do on a given trade.  And let's not leave out the all important aspects of trading psychology... discipline, consistency, and objectivity.

Writing on the blog about chart analysis is complicated, writing about trading theory is complicated, writing about the principles of a trading methodology are complicated.  I much rather prefer talking about the markets one on one, with another trader who wants to learn, either on the phone or in person, skype, or via "chat", or speaking about the markets while doing webinars, seminars, interviews or videos.  Stay tuned because that is the direction I am going in. More updates to come of course on the blog.  Join the email list so you don't have to check the site.  Get any updates in your inbox.

Monday, September 29, 2014

A look at the Nasdaq Composite Index underneath the hood

The Nasdaq Composite Index breadth indicators are jumping off the pages these days.  I have two charts below, but first of all going back to Friday September 19th, 2014, over the past six trading sessions there have been more "new" 52 week lows in this index than new 52 week highs, and there have been days that saw this market rally.  Now put that in context of where this Index is trading when you look at the raw numbers.

According to Markets Diary (Which I get from ETFDigest):

September 19 - 90 New Highs and 149 New Lows
September 22 - 31 New Highs and 147 New Lows
September 23 - 22 New Highs and 135 New Lows
September 24 - 29 New Highs and 136 New Lows
September 25 - 24 New Highs and 167 New Lows
September 26 - 30 New Highs and 96 New Lows

This may repair itself, but it should do it soon.  From my take on a historical perspective of Bearish Omens in a Bull Market this is a major warning.

Next I am sharing the chart of the Nasdaq Advance Decline Cumulative Line. This Breadth indicator is making new lows.  When studying this chart by itself, without knowing the year one would think this was a market that was in a downward trend and confirming new lows.  I would say this is serious Bearish Negative Divergence. 

This market may repair itself, but in my opinion it should get to work on doing so soon. 

Here is the last chart of the Nasdaq Composite Index for some perspective.

Wednesday, August 13, 2014

Dow Chart and a trading competition for fun

I have been following the Dow closely lately.  Here is the latest look at the chart below and the most significant development is on the Hourly chart as the Dow has rallied off a downward sloping trendline support and we shall see if a significant level of resistance forms or not near term.  I find myself less interested in writing and more interested in making short videos, which I have been sharing with some, and have yet to post on the blog.  The blog may begin to change from writings to short videos.  It saves a lot of time and words have different meanings depending on how we stress them with a tone of voice.

Last week I entered only my second trading competition for fun.  Both were short term "challenges".  Both competitions were on a simulator, with a starting balance of $150,000 and a max position size of 15 contracts.  The first had a daily loss limit of I believe $3,000 (this was years ago), the second had no daily loss limit.  Both challenges had some similarities and differences, but doing a trading competition has a completely different mindset for me as a trader since there is a "beginning" and an "end", so increasing pressure is there to make the right decisions, mistakes are always costly but especially when we are looking at only "days" to trade.  It is also very hard to be patient when the numbers on the leader board are flying for some early on.  Which might encourage some to be reckless or gamble.  In the first challenge I finished with a profit over $7,000 in two weeks and finished 15th out of approximately 250 traders.  Annualized its over a 100% return.  I was conservative I felt afterward, trading an average of 3 contracts per trade, rather than going "all in" max position size with every trade which can be tempting.  That is not my style.  When you go max position size, the loss is always maximum compared to the reward on the trade.  Nobody is right all the time, so the formula for success if flawed in my strongest beliefs if you trade same position size with every trade.  When you add to a winning trade, there is a way to increase the reward potential without increasing the initial risk taken on a trade.  Therefore the winning trades will always be relatively speaking a multiple of risk taken, and that is a good formula for me. Anyway, I felt that the next competition should I enter one like this, I would start with a "5 lot" as the minimum position and look to add two more times for the max position.  This time around that only happened once, and that was the big trade that made all the difference at the end of the challenge.  Over one week I had a 5 lot trade in ZB (Treasury Bonds) for around $1,500 in profit, a 5 lot trade in the NQ (Nasdaq 100) for around $5000 in profit, a 5 lot trade in NG (Natural Gas) that took only a $250 loss, and the 15 lot position that I build up in the Nikkei 225 that hit for more than $20,000 in profit.  Final total at the end of a single week, as this second challenge was only a one week competition was $179,000, a profit just under $30,000 in one week.  First place in the end had me beat by a few thousand.  I know there were over 150 traders in this competition but not sure of the true final total.

I may put up a video of the trades, but to write about each specific trade is very time consuming.  I have been doing short videos of simulated trades and may be sharing them with others who are interested in the trade management, risk management, and money management strategies of mine.  The biggest myth in the world in trading is that "entry" is what is most important.  There are key reference areas to trade from, and a trade location for entry is important, but it is only one single spoke on a wheel.  The exit strategy determines how much you make or lose on a given trade.  Do not spend more time on "entry strategies" than your "exit strategies".  Nothing is easier than getting in a trade.  There are dozens of other spokes in the wheel, such as "money management" and "position sizing" principles as well as including the psychological spokes of "discipline", "consistency", "objectivity", etc.  None more important than the other.

In the meantime here is the Dow chart.  I felt she had potential for the "waterfall" decline out of that support line on the Hourly chart last week but it never failed.    Let's see if this resistance forms three points of contact on the Hourly chart as then in my opinion a significant pattern has developed and a strategy can be put in place to "limit risk", and "maximize reward" potential at the key reference areas.

The last two posts on the blog on the Dow can be found here and here.

Friday, July 4, 2014

The dichotomy in Volume to Price in the Nasdaq 100 is jaw dropping

This chart pattern to me is unfathomable as I see it, but in the day of QEternity anything is possible.  The Volume in the Nasdaq 100 has been below average nearly every day for the last six weeks as the index is in a moonshot launch type mode.  The 50 period simple moving average volume traded in a day over that time period is down nearly 100,000 contracts.    

(Click on chart to expand)

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Tuesday, July 1, 2014

Silver is at a key reference area to trade from

Silver is at a significant trendline here on the Daily chart.  In my opinion the Bulls would rather see that recent above average Volume expanding on a breakout rather than coming into resistance. 

Tuesday, May 27, 2014

Things got exciting as expected in the Gold Futures with the nasty breakdown from an obvious pattern

The Gold futures had a ripe looking Triangle on the 3 month Daily chart, and there was nothing random about what took place today from this chartist's perspective.  The higher probability trade is with the previous trend coming into a consolidation range, and the path of least resistance in Gold's case was lower.  There should be no surprise that the breakdown was sharp today as the high volume node that built up in this range was a sign that a heavy amount of recent open interest on the wrong side of a break was going to be running for cover and in pain with any surge in price.  Notice the monster volume today on the lower sub-graph as the Bears took advantage of the situation.  It is best to be prepared whether a trader is on the sidelines looking to get in a position, or has a position on and is looking to add to a winner (for the short) or exit a long (risk management).  Nothing is certain with chart analysis, but understanding the phase of development a market is trading is as important as it gets in my opinion before doing anything, followed next by having a plan at "key reference areas" to trade from once that phase of development has been correctly identified. 

A previous post just the other day on this blog outlined this pattern and potential for the fireworks ahead of time as can be seen here.

(Click on chart to expand)

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Thursday, May 22, 2014

Things might start getting exciting again in the Gold Futures

The Gold futures are Coiling up on the Daily chart which I have highlighted with blue trendlines.  This has been a boring market for quiet some time, but she looks ripe for fireworks and a potential trend coming out out of a pattern such as this one.  The high volume node on the 6 month Daily chart is right here and there is plenty of open interest that can get burned real good on the wrong side of the trade if she takes off.

Saturday, April 26, 2014

Blog Update

I will be taking some time off from Blogging.  Stay in touch via email.  Thanks for checking in.


Monday, March 31, 2014

Failed Breakouts are strong signals

Here is a quick look at the recent breakout and failure of the Gold futures on the Hourly and Daily charts.  First notice the four points of contact on the left hand side hourly chart which solidifies this trendline as significant.  On the right side Daily chart the oval highlights the reversal above trendline resistance.  The lack of surging and sustained expanding Volume didn't help the Bulls on the breakout.

(Click on chart to expand)

Next the Hourly chart also has a breakdown and back-test as well.  The new swing low on the hourly chart opened the flood gates a bit after losing trendline support.  There was the re-test of the significant trendline on the above chart, but the Bulls failed to make a new swing high afterward which might have had the Bears scrambling.  The lack of follow through from the bigger picture Daily chart hurt the Bulls in this case for the time being. 

(Click on chart to expand)

This horizontal zone at $1275 is a major level in the Big Picture.

Saturday, March 15, 2014

Nasdaq 100 is in a bad spot for the Bulls near term

There has not been many reasons to favor the short trade intraday when trading the Nasdaq 100 futures, but now the Bears are in control of the path of least resistance in the near term picture, which can be seen by the breakdown of the Hourly chart pattern, see left hand side below.  This details of this pattern was laid out in a prior post here before the breakdown.  The Daily chart looks overextended to the upside with the volatile expanding triangle or megaphone pattern, see right hand side below.  The details of this pattern and the implications were also laid out in a prior post here.

Until the Nasdaq 100 can re-take the 3640 level to the upside, and preferably on surging volume, I believe the better day-trade for now is going to be on the short side with any failed breakouts to the upside intraday or with any bearish reversal patterns or bearish continuation patterns.  The opportunities to short this market have been so few and far between for years, but until this market reverses back above this prior support level on the hourly chart the probabilities favor that trade in my opinion.  This horizontal level should now act as a decent overhead resistance level.  If the Bulls rip it higher from here what can you do but step aside and take the small loss if trading is on the short side. 

(Click on chart to expand)

One thing to point out that has been a huge concern for me with the health of the Bull market is the pattern in Volume in the Daily timeframe, which can be seen on the lower sub-graph of the Daily chart.  That chart is dominated with large red bars, which means it was accompanying Bearish Price action.  The supply side pressure is much more intense.  If I remove the upper graph, and a non-biased trader spent time looking at only the chart in Volume, without knowing price, one would swear this was a Bear market with every rally getting crushed.  It is a must to click on the charts and spend time observing.

The fact that this is a Bull market screams that this is a pattern of Distribution.  Smart money accumulated a long time ago, and what it looks like from a historical perspective is the smart money is dishing it out to the "late to the party misinformed public" who has been whipped up by greed.

(Click on chart to expand)