Friday’s Results: Buying 3898.50 stopped out.

Quick Tip: Reversals & Breakouts

The high-volume price levels formed by the accumulation and distribution of big lot traders are simply at “fair value.” Think about it this way: there was a buyer and seller for every contract traded. This means they AGREED the price was fair.

Once price strays OUT of the fair value level it becomes attractive to a trader who is either bullish or bearish. This allows you to trade both reversals and breakouts around the volume levels.

For example, looking at the price chart from Friday the highest volume price level from Thursday was 3895.50/3898.50. That buy failed immediately and the breakout was a monster continuation of the down trend.  

What about legacy high-volume levels? They work the same enough of the time for an edge. Note the temporary reversal at 3838.50.

Keep in mind as you follow the performance of the Blog levels every day they are both reversal and breakout...

Thursday’s Results: The short at 3920.75 ran for 39.50 with only 1.25 points adverse.

Quick Tip: Math Meets Psychology

Much has been said about the similarities between trading and gambling. Much is true. All is not. A fabulous book you should read about this topic is A Man for All Markets by Edward O. Thorp, an accomplished mathematician, author of Beat the Dealer, and acclaimed hedge fund manager.

When Thorp tested his blackjack card counting system in the real world, financed by two wealthy (and greedy) millionaire businessmen, he uncovered a significant “edge” that you can and should apply to your trading.

His backers wanted him to bet big right from the start. Thorp opposed this idea. He was logical and methodical. Betting big before having confidence didn’t make sense to him. He started small and slowly worked his way up to the big bets. His backers were annoyed but Thorp insisted.

The system was a success in the real world. Afterward, Thorp wrote this:...

Wednesday’s Results: The buy at 4008.50 stopped out.

Quick Tip: Bear Market Recoveries

The Nasdaq and Russell 2000 indexes are deep in bear market territory, down 30%. The S&P is flirting with a 20% drop this morning (that being the definition of a bear market). You can learn something from recent history. Going back too far, prior to the computer age, will consider human emotions but not the massive technology change, which affects the speed at which price moves.

2000 Bear: Down 50% in 31 months, 60 months to recover.

2008 Bear: Down 57% in 17 months, 49 months to recover.

2020 Bear: Down 35% in 2 months, 5 months to recover.

2022 Bear: Down 20% (so far) in 5 months, recovery unknown.

It’s obvious that the drops and recoveries are happening faster. This is important to know. Planning how to handle the volatility gets a little easier.

If you’re a buy-and-hold investor you’re probably not worried at all. It will come back and most likely quickly given the...

Tuesday’s Results: The suggested short ran for 17.50 points with only 1.50 points adverse.

Quick Tip: Art in Exits

Dozens of different methods of trading can be profitable. If you doubt this statement you need to read any of Jack Schwager’s “Market Wizards” books.

In each book he interviews top traders from around the world. Dozens of them. What you’ll find is that almost every trader has a different take on how to trade. Some use technical indicators successfully. Others focus on algorithms. Still others use fundamentals and macroeconomics. Some are systems traders. Others are discretionary. The list of differences between them is long.

What they ALL have in common is profitability.

If your belief system has you stuck trading one way because your guru told you it’s the only way then this book series will open your eyes and mind. Enjoy it.

After reading his book series I began to look at my trade setups with a new view. Who will be on the other...

Monday’s Results: Neither suggested trade triggered.

Quick Tip: Focus on This

Novice traders focus on how much they are winning and losing. Every entry, hoping for a winner. Every stopped exit, wishing it didn’t happen. This is incredibly destructive behavior. You’re teasing your emotions, begging them to overrule your common sense.

Here’s how to stop:

1. Get a rule-based trade plan (if you help, take this free mini-course Ultimate Trade Plan).
2. Document every trade opportunity including the trades you didn’t take.
3. Create a rich database of evidence with hundreds of trades, maybe thousands.
4. Calculate the win/loss percentage of your strategy.
5. Calculate the average winning and losing trade in dollars.
6. Calculate the net gain and divide by the total number of trades.

Now you know the amount of money you make every time you click to enter regardless of outcome. That is what your mind should be focused on when a trade setup triggers. Not winning or losing. But...

Friday’s Results: Neither suggested level triggered.

Quick Tip: Power in confluence.

You have a trade plan with specific rules of entry and exit that produce a positive expectation (if not, get one or quit trading). If EVERY trader used the same plan and followed it precisely there would be no one to trade against.

You WANT and NEED traders to do something different than you. This is a good thing. Now if you want to step up your performance you’ll learn OTHER popular trading strategies. Not necessarily to trade them, but to consider what OTHERS may be doing at the same time.

Here's a simple example: the 20-period moving average is a popular technical indicator. You may not use it because it is a lagging indicator or you haven’t been taught HOW to make it work. Regardless, there are traders who use it. Put it on your chart.

Why? Because if your strategy is getting a signal to enter around there you might be finding some confluence (with other trade plans). If...

Thursday’s Results: Buying 3875.50 ran for 40.75 points. Shorting 3950.00 offered 7.50 points.

Quick Tip: A Different View    

In technical trading there are only a few variables to consider: price, volume, and time. Every technical indicator or method is derived from variations of these variables.

Most traders look at volume within a time interval. Your chart will display a histogram at the bottom showing the varying volumes traded. Good to know.

A different view would be the volume on the price axis of the chart. Now you see the volume at specific prices. Much better to know.

Why? Large lot traders approach buying and selling different than small lot traders. When we want to buy or sell we click a mouse and it’s done. Our position size is small.

Large lot traders can’t do that. They need to accumulate and distribute their positions in their chosen price ranges. Why would you NOT want to know where the value price is in the eyes of the traders...

Wednesday’s Results: The suggested buy at 3932.75 triggered late and bounced for 4.75 points before failing.

Quick Tip: Time Filters

One easy and excellent filter you should apply to your strategies is “time-of-day.” Your broker should have a download available to you with time stamps on all your trades. Import this to a spreadsheet and sort the trades by time of day. If you have enough trades you may see a pattern.

Going forward, its’ better to capture more information about each trade to fine-tune your filter. For example, one strategy here offers both reversal and breakout trades. With that appended to the time-of-day data, you can see if there is an edge for either of those trades. Obviously, you’ll customize your data captured to fit your rules. Remember to document all trade setups, not just the trades you took.

Here’s how this can be helpful: Yesterday’s buy suggestion triggered at 3:45 PM ET. Not much time left in the session. It was...

Tuesday’s Results: Neither suggested level triggered.

Quick Tip: Proactive Waiting

Plenty of time in trading is spent waiting. Waiting for a setup, waiting for an economic release, waiting for a profit target. Lots of waiting.

Here’s how to make this “downtime” productive: Get proactive. Get in the habit of asking “What if…?” questions. Answer them. In doing so you’ll be making decisions in advance and be able to act on the spot. No wondering, guessing, procrastinating or flat-out missing the trade. You’ve committed with foresight.

Here's a simple example: Price is slowly moving sideways. Your entry price to buy is far enough away that you don’t expect to see it trigger soon. Suddenly price plunges. The speed candle down is looking powerful.

Now is the time to anticipate, be proactive. Will it continue or reverse? Do you see any other chart features that could stall it? Accelerate it? What are the likely outcomes?

1. Slam...

Monday’s Results: Buying 4002.00 stopped.

Quick Tip: Reframing

As you review your trades from yesterday you’ll likely pause at the suggested buy at 4002. It was stopped out by only 3 ticks and then ran for more than 40 points.

Was the stop too tight? Was the entry too soon? You’re thinking about how you could have gotten into the trade.

Now if you’re a discretionary trader with no evidence of edge, just intuition and experience, that may be the correct review process.

Our team is rule-based. We work with statistically relevant evidence to make trading decisions. Pondering the reasons how we could have “made” it a winner is a waste of time. Specifically, we know that our entry and stop were correct probability-wise.

The review process then becomes “reframing.” Taking a negative and making it positive. Ask yourself, “More or less, did that volume level work?” Yes! It picked an intraday “V” bottom and triggered a...