Trembling Hand Trader

Show me the Money

Yes I know this is meant to be about my day trading course but its not. Just a quick post about the games this week. We have gaped down heavily overnight from crappy OS leads BUT the Big Boyz have tried hard to fix things. We have actually risen every day this week!! From the open that is. The two charts below show what I mean. The left one is the overnight SPI movement, while the right is the movement during day hours. Very unusual pattern, red nights green days, topped off today with a great effort on big volume. If this isn't a healthy effort from the Boyz showing a bit of a change from risk adverse to risk taking god knows what will hold this dog up.

Today was a great play by just keeping an eye on simple patterns. From the opening low to the high was a 135 tick trade. You don't need much to play this game just an ability to see the patterns. And mostly they are not in a charting book full of static crap.

You're not smart enough

Now I have your attention this post should be named "You're not smart enough for short cuts because its not what counts"

There are many things about trading that I have always found a little strange. Particularly why reasonable smart and logical people apply thinking that in my experience is illogical and must be unique to the trading field. It seems that the thinking and process of "I'm a sharp cookie at XYZ therefore I can jump in live with hard earned money and go up against pros and succeed" is unique to trading only.

If that logic is fine then it should work in reverse. That is a Pro trader should be able to jump in "live" at another profession. I have made some good money the last couple of years trading so does anyone want me to build them a house, run a school or perform open heart surgery????????

How much sense would it be for the surgeon to jump to Pro musician in 3 months of dubious training. Or the Builder to turn to electrician with 3 months of reading how-to become a sparkie journal's. It would be madness. YET thats is exactly how I would say 99% of people come to trading. They spend a couple of months "learning" the trade. And then get in all sorts of bother because they find it hard. I say WTF did you expect. Where or what else can you succeed at without a long and structured curriculum to acquire skills and correct processes?

No wonder a whole sub-industry has sprung up about trading psychology. When what is really needed is more SKILLS through correct development and feedback. I get contacted often from punters having troubles trading. Almost all comment within the first few paragraphs that they "lack discipline". They are finding it hard to pull the trigger or take stops. No shit! Every thing is hard to do with out proper training. When most of your "patients" are dying on the table from incompetence it will get harder to pick up the scalpel. My first question to these dudes is alway what statistical or proven edge have you got for taking your trades. The answers are just as predictable as the discipline line, "gaps always fill", "breakouts on high volume are good entries" Blah Blah Blah. They have nothing in the way of deep understanding of how or why markets move. They are market dumb.

You obviously need some level of intelligence and motivation which success in one field may be an indication of possible success in another field but its the learning process that makes the diff in the end to those that have a chance (ability). In no other field outside of trading/investing does one try their hand at the task "live" without a LONG training period. Think surgery, nope years learning. Musician nope 10 years before they stand next to pro and perform. Sports, nope start in the back yard then junior sports then elite amateur then pro. Again about 10 years. Apprentice trade, you would never give an apprentice the hammer and saw to build a house without 3 years or probably more of supervision. Chess, same a period of learning against better and better opposition not grandmasters after 3 months.

The same should be for trading. What has the Musician, Surgeon, Pro sports person, Apprentice and Chess players all had before they went "live". Progressively harder resultsin simulation. The same should be for trading. No money down until you have results without risking real cash. No playing with the Pros until you have a positive expectancy system on Sim or back-test. A "trading plan" is rubbish without the skills to go with it. And you only get the skills with progressive practice. I have a couple of post coming up about how I would structure the Trembling Hands Day Trading Course. I will be giving it away for free because unlike the rest of the crap out there I couldn't sell it if I wanted to. For my way of thinking what is need to be consistently profitable is not a couple of books or a course or a piece of software or a live chat room for $7000 but time and practice. With that in mind, effort needed not short cuts, I expect no one to give a toss about the next 3 post.

Hunted stops or bad trades?

"It is very clear Dodgy Inc Brokers go after stops."

Really? Have a look through stock forums at reviews on Forex and CFD Market Maker brokers and you see the above quote or a variation on it repeated over and over. The claim is that Market Makers are doing either two things,

1. Quoting you prices that do not correspond to the underlying market. Simply cheating. They are "drifting" the price away from the market to take out your stops and since they are on the other end of the trade your loss is their gain. Or,

2. That they are manipulating the underlying real market to take out their retail clients stops. That they are spending millions to manipulate the prices of real markets like Index Futures and Foreign exchange rates down or up enough that their clients stops are hit and again since they are on the other end of the trade your loss is their gain.

What a load of rubbish! The first point of drifting prices would be suicidal for them. It would create the biggest and easiest arbitrage trade ever. Here is the example. You have a DOW CFD Index Long @ 12,000 and an auto stop at 11,980. The Market Maker can see your stop so drifts their price artificially down 21 points to take out your stop but the real market doesn't move. What would the sharp Futures trader do when seeing this. He would sell the Futures at 12,000 and buy the CFD at 11,980 at the same time with his ears pinned back. That is a guaranteed 20 point win. All he has to do is wait until the CFD provider realign the prices and then close out the trades. Or if you knew that the prices drift and then realign why make it an arbitrage why not just load up on the incorrect prices and then close them once all is back to normal. I have challenged everyone who has stated that this has happened to post a chart so I can compare it to the underlying market but never have I seen this happen in spite of all the claims.

The second point that the Market Makers manipulate the under-lying market to take out stops just doesn't add up. Think about the cost to brokers of moving an Index Future to take out small retail traders. Or moving a FX cross 30 pips in the inter market Foreign exchange to hit your retail clients stops who are holding a couple of $1,000 leveraged position. Just madness to think that that is a profitable scenario. Yes the local players gun for stops in all markets but they are "in" the market looking for big volume. What is there to gain in hitting the ES(S&P500) futures with thousands of contracts to take out your small time retail CFD traders. It would cost you hundreds of thousands in the real market to hit your retail traders stops for a gain of a couple of thousand.

This assumption has profound effects on your trading and I warn anyone not to listen to this stuff. When you get stopped out and you put it down to manipulation by your broker what is that saying about your approach, your OWN actions and ability to learn. Every trade that goes bad is valuable info about the market and more importantly your trading method. If the only thing you get out of a loss is that the game is rigged you are on a course to failure. Instead of,

the game is rigged & and my brokers stealing from me.

Your response should be,

that trade didn't work what really went wrong?

Then you can take responsibility for a poor entry, poor stop placement or just incorrect reading of the market. Once you know the problem your just completed step 1 to fixing it. If you never recognize the cause you have no hope of finding a solution. The game is rigged for sure, its rigged against thous that will not take responsibility for their own actions and learn from them. Don't be lazy, don't move to the next market or next indicator do the work to fix your problem. One thing that may help is don't be stingy with your data. Bucket shops give out free or cheap data because thats all its worth. Your not looking at the real market. You get no volume and no depth of market to make proper decisions. Most CFD index players don't even know what instrument they are trading. And when looking at the real market you soon see that the volume of trades in $ terms would make point 2 above just not feasible. And point 1 a very profitable opportunity to the sharp punter. 

Yep, I told you!

As the chart below shows the big boyz are back and pushing hard. Yesterdays action was nothing short of amazing. And todays wasn't bad either. Don't tell me I didn't warn you.

Following the push

My last post was about the games the heavy hitters were playing. Since November last year it was painful obvious that the big money was pushing down and hard. Any sustained bid would eventually, if not swiftly, be overwhelmed by a mass of sell orders. Which lead to a record breaking 12 down days in a row and nasty 25% fall in the index. But things have changed. Bids are not only getting stronger they are becoming successful in lifting the price. Monday the 21st of April, as per the last post, I think was a warning shot to the bears that the game was shifting again. When you look at the increase in Open Interest you can see the trouble the Bears are now in. 45,000 contracts have been opened in the last two weeks at a rough average of 150 points lower. That adds some nice pain to the shorts and gives the Bulls the upper hand. It will be interesting to see how far they can stretch the rubber band and where they start to off load. Its always dangerous to read to much into the Open Interest figures for the SPI but the little break we have had has been a classic lesson in a large volume push. It started with a trap for the Bears as they tried to print a lower high then the next day, as per last post, a very aggressive buying day. Then a little bit of unloading and finally a push and break above highs into the squeeze zone. Will be interesting to see if the Bears take this one on the chin and cover or try to push back into the old range below 5670.

Big Boyz Games

Yesterday was an unusual up day on larger than average volume. Of course we have given back yesterdays range in the first hour but the aggressive buying is a warning shot. That level just under 5700 will be a line in the sand. The bulls will be gunning for a weekly close above that and the Bears have a clear line they need to defend. I get the feeling that it wasn't the locals swinging yesterday but more the big Boyz who like to play the game for longer.

No Brussel Sprouts!

Over on ASF a discussion about the possibility of taking consistent income out of the market from a modest account size has been going on. Whenever these discussions start, people always fall into two camps. The YES camp, mostly traders that are hoping to do it or people that are doing it. And the NO camp with their main argument being if you can do it consistently with $50,000 then with compounding you will be richer than Buffett in 10 years. Which is a crap argument. Traders don't compound all their gains they live off them. Also every trader will concede at some level trading 1 to 5 contracts is a lot easier than trading 20 and trading 100 a totally different game. As always the NO camp still won't accept that so I posted a challenge to the doubters to say I would do it if they took the other side of the trade ie double my profit. And then posted account statement showing that I have done it with far less. Turning a friend's account of $1000 into $50,000 in 7 days (here). Which is not a bad week's work!!(although folks don't try this at home)

After all the excitement has gone out of the results I have been getting a lot of questions about how I did it, comparisons and questions about other people's trading plans etc. The two common themes from those that may be struggling a bit with trading has been the trade setup question and the lack of discipline line. Which on both accounts what I believe to be the truth hasn't been taken all that well. Firstly my set ups. They are dead simple. Absolutely nothing fancy about them all simple chart patterns with thousands of hours staring at the DOM. Along with the do no harm line as far as money management goes and religiously keeping and tracking results to ALWAYS have something to work on. Either repeating the positive or avoiding the negative. So any trader knows the setups already. I know nothing special as far as that goes. Probably all the hours watching the DOM has enabled me to internalize the ticker patterns and act quickly to them. That is work that I have happily done not a chart pattern that I can put in writing.

Secondly the discipline line. We aren't robots, I know that. We make silly unplanned mistakes. That is where the name of this Blog comes from, with the best intentions and plans for some reason we still stuff things up. But if after taking 100s of trades most of your errors are ones of discipline then your trading is equivalent to eating Brussel Sprouts. That is, you know they are good for you, you know that you should eat green vegs but stuff it, you just don't like them. And you are never going to be good at doing something you don't like. If you are doing something that YOU know works AND fits with YOUR personality I just don't see you needing discipline to stick to it. If you can't take the trade, bad days aside, its either because you don't know your plan works or it simply doesn't gel with your personality. Don't confuse an old market cliche with a problem. When you find something that fits you as per the last post, you won’t want to do anything else.

Best Tip I have is find what you like. Get creative and then learn and practice it until your doing it  automatically, without any need for discipline. Find your chocolate ice-cream and stop forcing Brussel Sprouts down your neck.

Inconsistency, not a bad sign but a sign for sure.

In a thread over at Aussie Stock Forums I made a comment about the causes of inconsistency being a signal that you’re not trading to "your" niche. If you are a beginner obviously you are going to be wildly inconsistent because your skill level is going to be low. In fact as many have found out recently their results have more to do with the trading environment that their own skill. That’s fine a beginner at any task is going to experience wildly different results during there initial "learning" period.

But what of a reasonably experienced trader? What causes inconsistency in a trader that has been around the breakeven to profitable range for some years? The trader that has traded different markets and survived. Knows about money management and has a sound high probability trades that have been tested in the market. A trading plan that makes sense and even shown good profitability at times. What causes such a trader to veer from their trade setups? Not take trades when they are begging to be taken and what causes traders to pull out before profit targets are hit?

To give an example of the situation I am talking about I once tried out at a prop shop for a trading gig. Going in I had 2 weeks to show how I could trade the Futures market. It look like the perfect gig, I had a profitable record, they traded the same market mostly the same way I did(intraday) and the promise of trading size that my account would not be able to trade for years.

During the trial I think I made 40 points each day for the first 4 days which is pretty good trading 1 contract but by the end of the second week I had a heap of trouble hanging on to trades and also entering trades. So I was going nowhere. I would sit in the trading room and call out the next couple of ticks or think “this is going 5 points higher then back”. But I didn't trade it because my plan was looking for minimum 12-15 ticks with a 5 tick stop. So I started to stew and just watched trade after trade disappear.

As the last week wound down I knew I wasn't going to get the gig and started to place some quick trades in my own account and of course they all came in winners.

I didn't get the gig but it was the best failure of my trading career thus far. As the trial went by I got worse & worse. Why? It wasn't that I couldn't see the setups, they were there for sure. After having a good look at my effort I realised I wasn't a position day trader like I went to them as but a scalper. My trading plan was sound; it just didn’t gel with me. I was trying to trade a way that my brain didn't agree with. I could see for sure the next 5 ticks up and back yet I was trying to enter a position and hold on during what I knew was going to be movement against me. With the added pressure it was too much. I was out of my niche. And the end result was Inconsistency. Profitable for the first 4 days going to useless for the last 4.

Probably a better example is one that doesn’t involve trading. Imagine how a football team would go if you took the gun forward and swapped him into the full back position. They would probably have some good games but their results wouldn’t be consistent (yes I know that some can do this) They would be outside their niche as defenders in spite of them knowing how to play football and having all the skills of an elite footballer. You would expect them to play with inconsistency. They would be attaching when they should be watching the forward they are on.

Conventional trading wisdom would say that in the example of my trading I need better discipline to stick with my trading plan. The coach would probably tell the forward now new backman that they were also playing without discipline as they run up the field leaving their man to do as he wishes. I think the discipline line is a load of crap. The fact that my plan fell to bits when I had a blow touch applied to my forehead had little to do with discipline and more to do with gravitating towards my nature trading style. Discipline will stop a fast blow up but if you’re trading not to your nature you are still going to struggle.

A quote from a book Enhancing trader performance (B.N.Steenbarger) has always stuck with me from that time

“When you have found your niche, you don’t need discipline to do the right thing: you won’t want to do anything else”

Gold Finger out the Door?

Something for the Dung Beatles to chew on, Oh sorry Gold Bugs. Interesting trading last 2 weeks(if you go into such noise that is) Most of the gains in POG has come on very little volume. Where the falls are on big volume. Whose slipping out the back door??

Safe no more?

In time like this when not only is the shit hitting the fan but knocking it right off the table, things that once were safe become dangerous. As the nasty reversal in Gold has just illustrated. Yes the US dollar is about as strong as the Zimbabwean dollar but its not always about Fundamentals. When things look scary such as now and when a market falls in love with something like gold *when* the break comes it can be very damaging. This is probably not it as we all know this thing will be worth $2000000000 soon right?

A gap to fill

As hard as the Bulls have tried they just cannot fill the gap over 5465. Even with the rest of Asia up over 2 % there is just to many offers stuffing the run. Not to say it will not fill. If it can get into the 70s you would think we will get a bit of short covering but when? Everyone has seen it there and I'm sure there will be some fireworks to come. Bears have a lot to defend and probably the stronger under 5460.

Couple less fingers?

So your thinking of catch some falling knifes? Done it before worked well and now your armour is stronger than ever before? Fine just as long as you can with all honesty say that nothing has changed since it worked last time. If it hasn't then its the same trade. If it has then dip buying THIS TIME isn't the same trade that worked before and the chances of it working again are less. After five or more years of gains we have become programed to buy the dips. But we are not in the same environment of the previous five years. The game has changed as soon as we started to put in lower highs. It started in the Finacials and now its got hold of the XAO even with the strong Materials. Someone will pick the bottom for sure and they are going to feel great but thats not what this game is about. It making money when the time is right and not losing precious capital when the chances are staked against you. When we are making lower highs the chances are obviously stacked against you.

Bloody Short Sellers

Over on the business spectator they are beating up a storm about short selling wrecking the wealth of good honest Aussie Punters who have "invested" in shit, near broke companies with immoral tactics like short selling. What a bunch of whingers. They want to ride the Bull train hedge fund momentum on the way up but as soon as their ponzi schemes get busted they turn into socialist. They want the government to stop the Bear raids. They can't believe that someone can legally sell a company that is overvalued. Would they like a one way market? I'm sure they would but then they wouldn't be able to pimp themselves to sell their crap bull market reports. Wouldn't it of been nice had they with all there knowledge and contacts shared with their subscribers the fore coming problems the way over leveraged companies were facing? But no they didn't they were busy chewing on their own Bull Market Cow excrement. I guess thats why they pimp news letters, those that can trade do, those that can't sell yesterdays news.

Alan Kohler & Bob Gob get some sleep your starting to look dumb.

Painting a Picture

So whats the best indicator to use when day trading? Well I don't think there is any indicators that work often. You are wasting your time looking for an the BEST indicator. There is none, they give far to few reliable, trade-able signals to be bothered with. What reliably works is price patterns. Support/Resistance/Trends/Higher Highs/Lower Lows/OHLC patterns etc.
Sure you can find times on charts when an indicator is signaling something and seems to work but its just not often enough and the good signals don't out-way the times that they give you false signals or lagging signals or to early. Its the Price you trade not an indicator. Your trade is only good if its higher than you bought it (a price pattern) it is of no help to your account if you brought something and its lower but the RSI is over sold (Indicator pattern)

With that said the most helpful thing I have on my candle charts besides volume and a MA or two is a bar count down. The big money print the bars that they want and do most of the work in the last 1/4 of the period. Have a look at the trap that played out for the to keen in the SPI. This happens very regularity. Bars that look like good trade entries right up to 10 seconds to good all of a sudden turns bad as some high volume action reverse the play, trapping all that had got in on a not yet complete signal.

A very important tool to use when trading is replaying bad trades. Its hard to make clear judgments when looking back at static charts at the end of the day to see why you entered a trade and what went wrong as its only show where each bar finished. I use Ninja Trader to capture the days play and then am able to replay and see how things played out and how I can could of done things differently. Many time the action like above stand out like dogs balls and gives you something else to look for that is far more useful that some lagging indicator signal from the last 7, 14, 21 whatever bars, that will not tell you what is going to happen to the next 7, 14, 21 whatever bars.

Technical Analysis of your own patterns

Technical Analysis most basic premise is that the people involved in the market leave their foot prints of emotions in their actions that can be read in re-occurring patterns. When traders are bullish you can see patterns of higher highs and higher lows. When they are suffering loses, like recently, you see breaking of previous lows then its close to straight down, its a 'I give up get me out of here'. All the basic chart patterns represent some kind of emotion or thinking of the participants and this at times has little to do with fundamentals. Think of the patterns and you can classify the thinking or emotion. Double tops, frustration and give up. Head and shoulder, hope followed by disappointment then give up. Blow off top, I can't believe I have missed out on this great run , I'm in at any price. And on and on with consolidation followed by explosive and surprising strength etc.  Have a look at the charts below and you can see many of the basic Tech/a patterns support, resistance, retest and trends.

A nice up trend,

A persistent down trend

A double top and big drop,

Up trend with a nasty break and fade,

Broken up trend with nothing but disappointment and pain,

And my favorite. some classic Tech/a price patterns and even some time or cycle patterns,

So by now you are thinking what the hell is all the chart lesson step one about? Well these are not stock or index prices charts. They are plots of my P & L sum measured in points from scalping on the HSI. As you can see I'm pretty active doing about 200 round trips a day. What I have found is that as I monitor these charts I can see my own actions and emotions in my P & L. I can see where I am taking good entries and good exits. I can see where I have lost all control and refection from trade to trade. I can see a market that is fitting with my trading edge or one that is giving me nothing in spite of my best entries and effort to take tics from the HSI. What I have is a coach standing over my shoulder saying' look you are trading with frustration , you have made 15 trades in the last 10 minutes that have got you nowhere except paying commission, whats your edge here?' or 'look you have just gone from 200 ticks up to being flat in 30 minutes whats wrong with your approch' or even ' your a superstar up 600 tics but don't get to cocky you just took an 2 R loss on the last one.'

I keep pretty detailed measures of my trading and like to plot and dig into my performance to find areas that have stuffed up each day. With 200 trades a day one or two ticks per trade makes the differance between a loss or a spectacular day. What I would often see is in spite of me finishing up more days than not there were times that my trading was not much more than random orders thrown into the market. It would result in a string of consecutive loses, at times 10 in a row, that many times would be larger than 1R and also times of very small winning trades that would be just lost due to commission. This would be the difference of a great day turned into just another day. This is easy to see after the event but in the heat of the battle with a crazy wild index like the HSI it was not that hard to lose all proper mechanics and tactics when your average trade last 25 seconds. With my coach siting on my top trading screen I now get real time feed back of my emotions and thinking and can make adjustment during the battle which has resulted in more of the first chart rather than the mistakes that lead to chart 2 and 3. Or printing more of my own Bull market charts rather than digging myself a Bear chart.

Black box full of snake oil

Recently on Aussie Stock Forums something magnificent has taken place. Its nice to be part of an online community thats does some good in a field full of dreamers and people who prey on them. A thread was started by a new poster inquiring about Aussie Rob's Lifestyle Trader software. It got the normal replies by people who have been in the game long enough to have seen these get rich out of the box things. The standard replies about the money and time would be way better off spent on reading some reputable books and educating yourself. And some claims that it didn't work by people who have purchased it. Then the thread died a natural death. But then comes along someone calling himself a very happy purchaser and even gave an example of a great trade he just did from the system. These idiots always stand out like dogs balls. They are usually just newbies excited about the market and the potential they can see and the moderators and more experienced posters gently push them into line but this poster was doing something so transparent and wrong that he got jumped on big time from all directions. Stupidly he didn't stop until so many people had called him out that the thread now looks like the worst possible publicity he could get. Including someone willing to show the Consumer Trader, Tenancy Tribunal decision case against Aussie Rob's representatives.

Have a look at the thread and even post it on a blog if you can its now at number three when you google Lifestyle Trader.

http://www.aussiestockforums.com/forums/showthread.php?t=7517

Clearer but not all clear

Well the Fed chief has shredded his creditability buy flipping to growth worries. And its saved the US markets for now and probably ours but as I have said for a while things have changed and so should your plans. Its no longer buy and forget. Its buy and flip then short and cover. Any rallies here for some time are going to get dumped on by the trapped longs and the now in control shorts. Remember we need some sort of retest with a higher low before we think about starting a new uptrend. A rally for a couple of days is a reason for caution not celebration. Higher low will be the point to celebrate.

It has to be said where are the big funds and when are they going to flex their considerable muscle. Surely they are not going to be happy with matching the index at -20 + 1.

Have a look at the momentum oscillator. It has been worrying reading for over a year now and other than its way oversold reading there is not much to be happy about. As I have pointed out we have been getting great rallies from these meltdowns but thats it. We reach back up then work off the overbought reading then its all over. Less and less participate in the rallies. If you want to get bullish again on the market this thing needs to get strong and stay strong. but it won't it will just roll over again.

The end of the world?

Well you have to think something nasty is getting priced in here. And if it doesn't eventuate we are going to rally hard. But Boy oh Boy this is nasty. Imagine the state of all the margin accounts. I have a friend that had a 1 mil buy and forget margin portfolio. Now its buy and forget half a mil and still falling.