Many of you have heard that price action has a certain fractal nature to it. Here’s a pretty straightforward example which I spotted today.

Below is 2 hours worth of SPN candles from today. Look at the overall picture: a big move up, a reversal to the 38.2% retracement, and a move back up to the same price as the top of the first move.

Now, look “inside” that second thrust up. It’s a miniature replica of the overall move! You can see that it goes up, retraces to the 38.2% retracement, and then heads back up to the top again.

Look even harder, and note that the first thrust has a single red candle about 2/3rds of the way through on the “overall” move, and a very flat candle in a similar spot in the “replica” move. There are a couple other, more muddy similarities, that are easy for me to picture but hard to describe. Are they a perfect match? No. But they are similar.

Of course, it doesn’t have to be so incredibly blatant to qualify for “fracticality.” But:

• Most people picture the famous Mandelbrot Set and its embedded self-similar replicas when they think of fractals.
• Blatant examples make for better blog posts.

This trader made $14,000 scalping the DAX futures over the course of about an hour and a half. And to think, just yesterday someone left a comment on this blog that no big money can be made in scalping! I would say, there’s plenty of money to be made in every trading style, provided you don’t suck at it.

Because of youtube video length limits, this video is in 8 parts (you can go to the trader’s youtube page to see all eight… I’m only embedding the first part here).

Interestingly enough, I did not see one losing trade in this series of videos. I wasn’t watching very closely at some points because I was also eating and checking email… so there might have been some. Either they were all winners, or at least the vast majority were. Gotta love that.

So, is the trader good, or is the trader lucky? Well, there’s no sound, so you have to interpret the charts to see what kind of strategy is in use. The most interesting part that’s plainly obvious is the way the trader scales into trades as they run negative. It appears to be part of the plan to scale in, but I can tell they were sweating on a couple trades, because as soon as they went positive on the bigger positions they got right out. I wanted to see a trade get stopped out just once, as proof that they weren’t willing to double down indefinitely, but I didn’t see one.

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This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I traded 11 positions today–4 wins for +4.9R, 7 losses for -5.1R, net -0.2R. I’m really shooting myself in the foot with some of the plays I take! Once again, I held losers too long, though I executed the winners well. AAPL spanked me three times! I’ll stop trading a stock if it gives me two losses in a day. If I get two losers, I’m not reading the stock right, and any more trades on it will be out of revenge to “get my money back”. So, with any one stock, it’s two strikes and I’m out of it for the day. That would have saved me 1.1R today.

Here’s a chart of my PnL so far as a Prop Trader (the area highlighted is today’s trading alone):

So basically, I’m flat. I have a few good trades, and lots of little bad ones. I need to keep away from “scalping” until I get it right. I had the idea to only scalp from a PnF chart, and my exit signal is if the column switches over. My natural sense of timing burned me a few times today, both on entries and exits.

Anyway, here’s the two good ones from today:

AMZN

SNDK

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I was five for five today, with all wins. Feels good after yesterday, when I was only four for seven. In the video below, I go over all five trades, and one loss I had yesterday (since I was too sleepy to make a video yesterday). The trades today were on BEAV, RCII, COST, RBC, and CROX.

It’s still really tough out there for my style of trading. I’m in guerrilla mode, taking profits very quickly. Yesterday, I was trying to adjust to the chop by giving my trades a little more room to move… the result was that my losses tended to be larger than my gains… not exactly a winning formula! So, today I used tighter stops again and just got really aggressive about locking in gains. I swear, every time I decide I want to try to ride winners longer, the markets kick my ass and turn me back into a scalper.

I made some adjustments to my two main paintbars (the trend following one and the mean-reversal one) last night, which seems to have made them much more effective. I am almost ready to publish them here if anyone wants to play with them. They are far from perfect, but they do let me know when lots of indicators are trending or rolling over. It’s good to help reinforce my decisions.

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Here’s a Pile ‘O Charts from my trades today. I took seven trades, 3 losers for -2.2R, two breakeven, and two winners for +4.6R, leaving me at +2.4R for the day. My prop account overall PnL is up about +1.5R from my starting balance. I’m happy with those results for now, especially on the last few days we’ve had! I need to be quicker to cut a loser–I still have some of that bias left over from all of my retail trades, trying to save that daytrade!

Here’s the charts. As always, Red is my stop, orange my entry, green lines are for targets, and blue lines mark exits. On my trade in Continental Airlines (NYSE: CAL), I partialed out successfully, taking some profits and letting the rest run, giving the one big win of 3.53R.

CAL Short (My good trade for the day)

AAPL Short (Quick -1R that afterward turned and went way beyond my target! DOH!)

CFC Short

BIDU Short

ISRG Long

RIMM Long

CROX Long

Stocks Mentioned In This Article
Stock	Links
CAL	| |

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I’m about to go out for a while, but I thought I’d leave you with a quick thought. Maybe everyone knows this, and maybe not. It’s conventional wisdom that you want to see low-volume pullbacks on trends. They are safer to jump into. Do you know why? If not, think about and make a guess before reading on. Or don’t; I don’t really care. I just like to say that stuff because it makes me sound more educational.

Ready? Let’s take an uptrend, for our example. So, you start with move up in the stock price. There are two ways this can happen (I’m oversimplifying): strong buyers, or weak sellers. You want the up move to be on high volume, because that indicates that it’s likely that you have strong buyers.

Now, the pullback. The stock price is moving down (or at least, not moving up anymore). There are two ways this can happen: strong sellers or weak buyers. Low volume during the pullback makes it more likely that you have weak buyers. And, when you think about it, that’s the preferable option if you hope that the trend will resume. This is also why you want the pullback to be relatively shallow: you want the buyers to be resting… not absent!

An “ideal” uptrend has surges of buying pressure with rests in between, and no big surges of selling pressure. In fact, books on chart patterns sometimes say that a prolonged increase in volume often indicates the end of an uptrend. I imagine one reason could be that sellers step up and eat through the remaining buyers, causing a glut of volume at the top. Another reason would be if the volume surge corresponded to a parabolic move up, which is unsustainable in most cases. Yet another reason would be that a glut of volume means a lot of people are holding shares, and the market always tries to screw over as many people as possible.

Think of that last reason for a minute, and realize why increasing volume does not point to the end of a down trend as reliably as it indicates the end of an uptrend. A prolonged increase in volume means a lot of people are long the stock. For the market to screw over the most people, it would need to continue dropping a bit longer, and then snap back up on lower volume.

So, there. I think it helps me a lot to have an understanding of what might be going on “inside” the chart. I prefer to think I’m trading real market phenomena, and not just chart patterns.

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Over the past few days, I have been reading more and more, and more posts about how a reversal is just around the next 15-min candlestick.

Before I go any further, let me first define the term reversal. By reversal, I mean a reversal of the current downtrend in the daily chart of ES.
The desire to be the definitive source of authority in prognosticating and predicting what the market will do next is seductive to say the least. And in each case, compelling reasons are offered to justify making such predictions. Let’s examine the reasoning for a reversal one by one.

1. % of stocks above their 40day MA is below a certain threshold.
All this really means is that a lot more stocks this week have broken down and reached oversold levels. But just because a stock is oversold does not mean it should be bought. In fact, according to Dan Fitzpatrick, a stock that is persistently oversold is a sign of bearish strength. (Well, he actually said that a stock that is persistently overbought is a sign of bullish strength, but you get the drift). It’s not unrealistic to apply that same logic to the market indicies as a whole. And I think this week could qualify as persistently oversold, can it not? The markets can remain irrational longer than you can remain solvent, can it not? Certainly there was more money to be made this past week by trading with the trend than trading against the trend.

2. Nasdaq Advance-Decline Says Buy.
I respectfully disagree with that notion. The Nasdaq Advance-Decline is actually saying oversold. Now, go back and read my first point.

3. Five Weak Days.
Historical patterns suggest that Five Weak Days have resulted in the market being net higher 5 days later for 51 out of the 69 times this occurred since 1990. The avg. 20day gain after 5 weak days was 3.21 %.
Well, my response to this is that let’s look at a chart.

Historical statistics know absolutely nothing about the context of the current market conditions. Notice how a +3% gain at this point will barely break the downtrend line? So even if the market were to move up in the next day or two (which I acknowledge that it very well might do), that would not necessarily mean a reversal has taken place. The reason is that at this point, the range and volatility has expanded so much that for the S&P500 Futures (ES) to close up +10 points no longer qualifies as a reversal. After all, that only takes us back up to 1468; it would have to move way more than that and also sustain that up move for a certain period of time in order to constitute a real reversal.

On the contrary, I will offer up three of my own reasons why we won’t see a reversal any time soon:

1) There are still fund managers that are trapped in long positions. Next week is month end, and guess what, they have to window dress their portfolio, and they need to provide the illusion of outperformance in those glossy brochures that they need to sell to their clients. So there will probably be a lot of volatility, range expansion, and churn, but a reversal is unlikely to be a result of all that.

2) This week’s move in the markets was not isolated to the US Equity markets. There was no divergence in the markets. Instead, it was the unifying shot heard round the world, as the All Ordinaries, FTSE, DAX, CAC, Nikkei, HangSeng, Sensex, Bovespa, and TSX indicies all participated in the correction and sank more than 1%. We are talking about a complete global rout here, that is how strong this bear is.

3) There are still many out there who still stubbornly cling onto the illusion that the stocks are cheap and on sale after this weeks’ drop.
Well, technically, they are correct, every stock out there is cheaper after this week. And it is these dip buyers that will add fuel to the bear as their stops get taken out.

4) Futures markets are forward looking. But on Friday, the S&P500 futures closed at the same price as the cash index - 1458. Usually there is a +10-15point premium built into the futures, and this is the first that I have seen it close at the same price as the cash index. That could mean the futures market has exaggerated this current down move, or it could actually mean a fundamental shift in sentiment taking place, ie. we are perhaps seeing the end of the bull market. Only time will tell which explanation is the correct one.

As a trader, I’ve learned not to guess nor predict what the chart will do, but WAIT for the chart to show me what it IS doing! And of course, Rule number one is that you must make the trend your friend - trading against the prevailing trend is high risk. So, while I do see the increased probability of an up day in the next day or two, I certainly don’t see any signs of a reversal. The markets alone will decide the time schedule for a reversal, and it is better to wait for it to show its hand, rather than try to take action prematurely.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Did Tom C ever start a blog? I think it’d be a more successful spinoff than, say, Joey.

(no, this isn’t the article I said I might write in my last video!)

I’ve been reading through the OONR7 blog this morning, and it looks pretty enjoyable.

Unlike a lot of you out there, I’ve never (to my knowledge) taken a “Trader-X” trade. I’ve just never had it in me… the profit targets always seemed too lofty (and when I saw new traders try it, they usually didn’t hit the extension with any consistency). More importantly, I’m just plain too lazy to draw the fib lines (and because I rarely do it, I can never remember whether I’m supposed to drag the line up or down–and I always guess wrong and have to redo it!). Sad, but true.

But, OONR7’s spin on this style looks a little better to me. He tends to use faster charts, and uses smaller intraday fibs. I may try this out next week, for laughs. I have a theory that the only real “strategy” is a feel for price-action, and all the rest is just a framework to help grab your attention at promising times. For instance, I’ve gone from daily breakouts to intraday reversal plays these last couple weeks, and my win rate and expectancy is pretty much the same. I went from time charts to volume charts to PnF charts a while back, and my win rate and expectancy are pretty much the same. To me, this means that the strategy you use and the charts you look at really aren’t what determines your results. Just find what’s comfortable for you to look at, and what most readily shows you what you want to see… at the end of the day, you’ve still got to guess which way price is going to go.

(this is still not the article… that’s still coming… probably tomorrow… I’m tired at the moment… netflix promised that Weeds, Season 2 will be in my mailbox if I can drag my ass out there to check… if so, watching those discs will be my main activity today.)

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

SPY was looking pretty weak this morning, so I decided to look for some shorts as SPY was unable to close above previous swing high on 15 minute chart from yesterday. I didn’t plan on trading today, but the market looked pretty darn weak and predictable. Did I say that :/ ?

GSK:

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Three trades today, for 2 wins and 1 loss. I made money every day this week, but I’m overall pretty disappointed in the amount I pulled in. The way the overall dow and nasdaq were moving, you’d think I could find something bigger to trade. But, all these unusual market days in a row were making me extra cautious. I’m going to study some charts this weekend and try to get a feel for what I should have done differently (if anything).

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Great to be back from vacation and back to work!! I took one trade during vacation for break-even. Maybe I can take a whole vacation next year without trading ;). I was ready to trade yesterday, but didn’t as I wanted to see what direction the market may take. When SPY broke its’ O/R low after a feeble attempt at a gap fill today, I started looking for some short candidates. Oh, BTW, I caught some big air wakeboarding. I missed my calling.

SKM:

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I took 10 trades today in my first full day prop trading. Some were well thought out and some were not. I ended up finishing the day -2.5R down, so after yesterday’s gain my overall PnL is now at -0.5R. My win rate is only 30%. Lots of room for improvement. Today was a wild market day, though I made plenty of mistakes and took some unjustified risks on mediocre setups. I traded a lot off of the 1 minute chart, since I could. When I was down, I wanted to make it back. Just a quick scalp. I better watch that! If I wasn’t keeping my position size so small, I could have lost a bunch today.

One downside of graduating from 1 trade per day to 10 is that I can’t go over all of the trades in detail as I did before. Well, maybe that’s an upside for some of you out there. :/ Most of my trades were too tight for the volatility today. I shorted BIDU, got stopped out at a retrace to breakeven, and then it ran to about 3R later in the day. I also entered GRMN on a flag on the 5 minute, before the consolidation broke, and got nailed for -1R as it broke the wrong way. Lots of ~-0.8R losers, and only a couple of winners.

My best trade today was in Continental Airlines (NYSE: CAL), and it was also one of the only trades I took from the 15 minute timeframe (which should teach me a lesson). I entered at the orange line, stops managed by the red lines, and I took a partial at the 119% fib (blue line 1) as price stalled. The final cover came at the 138% fib (blue line 2), which was also just about the low of the day:

Thank you Trader-X for that one. Too bad I missed the entry earlier in the day.

I’ll try to be more selective in my setups from now on, even with my newfound freedom from pattern daytrader rules.

Stocks Mentioned In This Article
Stock	Links
CAL	| |

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I was going to take the day off, because everyone seemed to be focused on AAPL and BIDU (neither of which I like to trade), and the markets had another gap opening. Since I usually take a couple hours off each Thursday anyway, I thought it would be nice to just extend that outing.

But, I was in a good mood when I got back home around 2PM EST, and decided to try to find a trade in the last two hours of trading. I found two trades, and took one of them. Both would have been winners. Here’s the video about the trade I took, in Psychiatric Solutions, Inc. (Nasdaq: PSYS).

I didn’t mention it in the video, but my entry corresponded to a long signal on my short-term PnF chart. I always check all of my charts before taking even a tiny trade like this! Any warning signs, and I usually choose not to put my money in harm’s way.

There was some nice discussion on trend following today on wallstreak. The biggest thread was here, but there were others (all in the futures room).

Stocks Mentioned In This Article
Stock	Links
PSYS	| |

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Man, what a rough day. Roughest day this week for trading, in my opinion. If you follow my trades on jaiku, you already know that I did find 3 trades, and all three were winners. But, they didn’t make very much money overall.

Here’s a quick video that goes over them, featuring all the wit and insight I can muster without any preparation or caffeine:

The trades were in Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX), CONSOL Energy Inc. (NYSE: CNX), and Fronteir Oil Corp. (NYSE: FTO).

I like making these unedited videos… it’s pretty quick (the youtube upload+processing is the longest part, actually). I think I did a decent job of talking quickly on this one without a lot of ummmmss and uhhhhs and stupid pauses. When I edit my videos over on my macs, I spend a lot of time eliminating dead air.

Stocks Mentioned In This Article
Stock	Links
VRTX	| |
CNX	| |
FTO	| |

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Here’s the 3-minute view of my trades today, on AMR, CCJ, UCTT, BTU, STLD, and AKS. Five winners and one loser. I try to describe what I saw, and how it played out, and still keep the video under 10 minutes.

In all cases, I was tracking the daily and intraday context via point-and-figure charts (as described in my previous post)… but I couldn’t show you all of that because of time constraints. And, you would probably all be bored to death.

I configured the video codec to make a much smaller file, which was nice, but it left noticeable blocky artifacts when my mouse moved on-screen. So, I’ll alter it again for the next video so the quality is a little better.

You can read about these trades and comment on them as they are happening on my #daytraders channel on jaiku. I usually don’t post them in time for you to also take them–usually I have to get in shortly after I spot them–, but sometimes there is time for me to mention them early.

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