Archive for the ‘The System’ Category

V day

V is for volatility.

The $vix.x hit 40+ and the market reversed from just over +100 points for the week. We have been expecting a violent reversal, and only liars or the extremely talented know exactly where and when it will come.

The V bounce gave a few clues but guessing against the trend is just that: guessing. If you have been prudently selling rallies, then if you took an attempt or two at logical resistance, that is all that was required.

The profits playing the trend the past few weeks on the short side more than compensate for any few small losses you endured today. If you played according to the plan, it was an exceptional day with serious profits.

The smart traders walked away after a great morning and let the market sort itself out. The really smart traders hit the reverse button after they realized the afternoon breakout was taking hold.

V bounces are mysterious creatures that occcur so infrequently that they trap the unsuspecting who average in and lose everything in one bad day.

News reversals are an important part of trading; the government must do all it can do right now to prop up the market or the house of cards collapses.

The “Too big to fail” concept evidently applies to AIG but not to Lehman.

A few cheap options on either side is another way to hedge a schizophrenic market like this one that is searching for a bottom. The other aternative is to stand aside until the market becomes more normal.

Secret code traders had no problem today understanding the rhythm.


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Ferocious rallies are the hallmark of bear markets.

No one knows until hindsight. I have noticed, however, that secondary indicators like the Svix.x, tick, trin, etc are helpful, but only a fool will call for a bottom without seeing sideways action and/or major capitulation first.

Let the talking heads on CNBC make their claims; for me the travel range offers unprecedented opportunities to make money in BOTH directions.

Remember Shawn and Nastia? Try to flow and be as flexible as they are when you are trading if you want to put the gold in your pocket.

Who cares if it is over or not; all we want to do is find the travel range, and catch a piece of the action.

Catching a falling safe, however, is another matter.

Trend traders will keep attacking the prevailing trend until it stops working. Jesse Livermore said it best; “The market is never too low to short or too high to buy.”

Play the trend until it stops working is my plan. how about you?

As Mark Twain would say, “The reports of my death are greatly exaggerated”.


bull chases bear

bull chases bear

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If you know the secret code, taking money out of the market is a lot easier.

Today’s ugly chart pattern is a thing of beauty to the market participants who know how to read it.

If you are not one of us, what is holding you back?

Day after day, week in and week out, opportunities abound.

Knowing where and when expected support and resistance lie is the whole key.

Applying that knowledge is the answer to all your financial challeges.

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Ugly is Beautiful

Ugly is Beautiful

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Do you remember the game of chutes and ladders?

It was a favorite of mine when I was a kid.

Sometimes a picture is worth a thousand words.

Learn to see the big picture.

Bear markets jump out the window, so you either take the leap of faith or miss the move. 


Chutes and ladders

Chutes and ladders


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 Sloppy and choppy trading for the vast majority of traders unaccustomed to sequence trading.

 Plenty of setups today in both directions if you know what you are looking for.

Grabbing the majority of the move and leaving the last tic or two for the greedy usually works best for me.

That’s the essence of risk and reward; where do the odds of a small or large reversal begin to dictate your choice in direction?

Trend trading is my preferred method of playing; but in range days (or reversal days!) it seems wiser to play the range trading game until it doesn’t work anymore.

Having multiple contracts on increases our risk, but allows us to scale out our first points and then trail for the larger move. Scaling into a position is also viable provided we aren’t deluding our self about the true stop and breakout areas. These are gray areas that each trader has to address in our own business plan.

If I sense a big move is coming, I will assume a little more risk; not by adding more contracts but by scaling in early and then a bit late if it takes a little more time to develop the play.

I also am willing to assume more risk when the count is in my favor. Bases loaded, no outs, and a 3-0 count I assume the pitcher is coming with a fast ball right down the middle. When I get my favorite pattern setup, at the right time, and with the right volume signal, I am all over it.

Many ways to play the risk reward game; as long as I am willing to pay the price when I am wrong.

Staying in the game long enough to get another at bat is what it’s all about.


slice and dice

slice and dice

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I believe that everything in life serves me.

Summer vacation at the beach last week is no exception. A few observations:

  • Watching the waves, almost imperceptibly, the tide turns.
  • Swmming with the current that ran parallel to the shore was effortless.
  • Swimming against the current that ran parallel to the shore was impossible, even for Michael Phelps.
  • When riding the current, “getting out a little sooner” was easier than waiting until caught in the chop.
  • A come-along was the tool of choice to pull an off-roading BMW X5 out of the sand.
  • What a difference a day makes; one day sunny and pleasant, another cloudy, windy, and cold.

 Newly released Elliot Wave research has revealed some eye-opening results that will most certainly prove to be controversial.  Take a look.

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Robert Prechter’s Elliot Wave International is perhaps the most famous of contemporary wave theoricsts.

The main thrust is 3 impulse, 2 corrective waves.

The corrective phase against the main trend is the a-b-c wave; the one I call the microwave. It helps me keep clear what is the main direction we are going next. As a day trader, that is all that matters, try to scalp and position your trades along with the current momentum.

Some traders say that Elliot wave, although extremely elegant, is only easy to see in hindsight. I continue to study the methodology, but must admit I find it challenging to make the correct count in real time.

Deciphering the geometry of markets is also an art form; leaving a few lines on the chart helps me to remember to look for structure. Combined with the secret code, it’s a one-two punch that’s a knockout.

One of the hardest trades to take is to go long the hard gap up open. Every ounce of my being wants to short and keep shorting it. If the signal is there, I take it long, it’s as simple as that. If I can’t bring myself to do that, then I try to be patient and do nothing.

Letting the first hour range set up gives me an edge, as I can step in from a logical counter-trend play. Intuition and a few major indicators are the key to sensing this situation. This play is deadly because it is infrequently seen; thin volume today helped to make it happen.

Using prudent stop losses if we get it wrong is a must; never jeopardize our account to a major draw down because we are careless.

Another summer Friday that the boys hit it in premarket.

Speaking of waves, summer is rapidly moving along; there’s more to life than just the market; time for some R and R at the beach. See you in a week after vacation.


micro wave and the geometry of markets

micro wave and the geometry of markets

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