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

ganked from slashdot..

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

Originally, I set up the rainbow chart with WMAs 10 - 240 on a 144 tick chart. That seems to be a common setting for tick chart users.

I also plotted those MMAs on a one minute chart, but then the longest MA would encompass four hours. Using the one minute chart for an example, I used several MAs in increments of three - from three to 59. The reason I’m using the minute based chart is so that its easy to see that we’re talking about one hour. For day trading, these could be considered long term holders. Obviously, traders use different time frames depending on their style.

On this particular chart, the light blue lines paint a picture of the short term action, while the red lines cover the longer period. So what’s the big deal with all of these MAs. Here’s one simple strategy to help you identify the trend, and find an entry point.

I circled two possible entry points that would have enabled you to ride this trend down. If you are a scalper, you could grab a few quick points, and be done. This is the basic idea. Since the red lines are the longer MAs on this chart, watch for them to spread out. If they are widening in an orderly fashion, watch the blue lines for a possible entry. When the blue lines converge, and form a hook, your entry point is when they start to move down. How do you know its a safe entry? Well, you don’t really know anything, but with the red lines spread out, the chances of that pullback turning into a reversal of the dominant trend is unlikely.

On these two trades, the CCI confirmed the entry.

The basic premise behind MMAs is to help determine the dominant trend, and find a safe place to enter in that direction. Hopefully, as a new thrust is starting.

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

(Sorry about the title. It’s my internal name for the charts since I can’t ever remember how to spell the real name.) [Edit: Ok, I looked it up so google could index this article appropriately.... it's Ichimoku Kinko Hyo charts.]

I saw these charts in TAoS&C last year, but disregarded them pretty quickly. It seemed too arbitrary, and also the article said the two main lines were moving averages. Projecting moving averages forward and backward didn’t make much sense to me.

Well, now MWF is interested in them, so I spent some time today taking a closer look. It turns out, the two main lines are midpoints rather than moving averages, and I can see the logic in what they are doing now. It’s really not too much different than moving averages, except by projecting that cloud forward in time they get a nice visual effect.

I’m going to assume you know something about the itchy charts… if you don’t, then check out the article MWF linked.

I think of it like this… as far as I can tell, the three parameters should represent 1/3rd cycle, 1 cycle, and 2 cycles on whatever chart you use. Incidentally, this means that the traditional 9,26,52 are probably not very good choices. On ES I am using 7,21,42 as a start. Maybe I will make it adaptive in the future. Anyway, so given that, it’s clear why a cross of the 1/3rd cycle midpoint with the full cycle midpoint would give you a bullish feeling, and vice versa. It’s kinda like a cycle-width pivot point. So far so good.

Then, they take the average of those two values (though honestly I think it’d work just as well to just use the 1-cycle number, especially given that averaging them seems so arbitrary), and they push that number forward 1 cycle into the future. They also project a 2-cycle midpoint out 1 cycle into the future. The area inside these two points is “the cloud.”

Now, the party line on “the cloud” is that it represents support/resistance. I don’t really buy that. It works no better than a moving average in that regard. BUT, it does make sense that the cloud can help you gauge the trend. Why? Because if you are trending up, then 1 cycle from now you ought to be above the midpoint of this cycle, and you REALLY shouldn’t fall below the midpoint of the last two cycles. See?

So, price relationship to the cloud can help confirm the current trend. Moving averages with a 1-cycle and 2-cycle lag would do the same thing (which is why MA’s with periods around 80 are good at holding price down on ES… it’ll have a lag of 40 candles, or about 2 cycles). Don’t believe me? Here’s a chart with the Itchy cloud, along with 42 and 84 period MAs. See how the MAs and the cloud are very similar? Nothing magic about it.

Ok, so then there’s that line that they project backwards…. what’s that about? Well, they are projecting the current price backward 1 cycle. It stands to reason that, if the current price is above where we were one cycle ago, then buyers are active, and vice versa. That’s all it’s for, as far as I can tell… it adds strength to buy and sell signals if you were already heading in the right direction.

I put the TS code together in a few minutes… it’s very easy calculations. Instead of projecting that one line backward in time, I just put colored dots on top of the primary line. Green means that the backward line was above the price, and red means the backward line was below the price. It was WAY too messy to have a line that looked just like price action, only on a delay. If I want to see double, I’ll get (more) drunk, thank you very much.

For fun, I built a workspace out of the itchy ho charts, meant for scalping. The entry signal is the eotpro.com Patty B signal. The idea is to take the first PattyB after the Itchy lines cross, when the price is in the right relationship to the cloud. I also put on a very quick 5-minute rolling VWAP (and the associated paintbars) as secondary confirmation. I threw it on multiple time frames, as is my usual practice.

You can see a typical play highlighted on the chart. The 3 timeframes all agree about the trend, and we take a shot at a fresh push up on the fastest time frame. I looked over a couple days of data, and it looks pretty decent. Since I can only trade a partial day Tuesday, I may try this bad boy out! :-)

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

I’ve been reading in a lot of different places that there is no holy grail, or magic indicator. I probably would have said the same thing a few months ago. Don’t confuse indicators - that work - with a holy grail.

Richard came into the futures arena, and almost immediately started turning a profit. That didn’t surprise me, but the way he did it, certainly did. His method for stock trading didn’t translate well into the @ES. However, with the help of the guys (and indicators) at EOTPRO, he’s embarrassing the rest of us.

You may want to rethink the value of indicators.

I also highly recommend this book.

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

I don’t think I’ve been doing a very good job of generating developmental material for the site lately. The older articles I’ve written are still popular, but when I look at them now I mostly cringe. I think it’s because I was writing about problems I was overcoming, and now that I don’t have those problems, the posts seem silly. The old interview MWF recently posted reminded me of how different my viewpoint is today than it was in 2006.

It stands to reason that I would cringe less at more recent articles, if I would just write some. After all, I still have problems with my trading and I still work on them. It’s just that, the kinds of things I focus on now are more personal, and generally harder to put into words. And I am lazy.

I don’t mean personal as in private or embarrassing, but personal as in relating specifically to what goes on in my mind. And also, it’s harder to know when I’ve really “won” or learned anything worth passing on to others… it’s not as clear-cut as when I decided I knew something about profit factors.

I will give you an example. If I could change one thing about my trading today, I would want to trade all day as if it were my first trade of the day. If you read the site and watch the videos, you know that once I’ve made some decent money, I lose all motivation to trade. I still watch the markets, but none of the setups look good enough to me anymore. I feel sluggish and uninterested. On the other hand, when I’ve traded myself into a hole, I have no trouble finding good trades until I’m in the green again.

So, even though it presents itself as a kind of lethargy or distaste for trading, I have to assume that there’s some fear deep down of giving up the money I just made. Or maybe it’s something else. But the fear thing sounds good. I would like to fix this, because I think I would be well on my way to serious wealth by now if I could just keep trading enthusiastically. Trading stocks, I would usually take 3 to 5 trades, which for my style meant I had open trades in the market for a total of 2 or 3 minutes out of the market day. Obviously, there was room for a LOT more trades. The big downtrend on Friday gave me lots of opportunities in @ES that I didn’t take. You saw me take the first one effortlessly in the live trade video. Each trade after that took more willpower, and after I made a few more points I pretty much stopped at midday. Crazy!

So that’s the kind of thing I am focused on now. I am reading Trading in the Zone for the first time, in preparation for an eotpro event with the author. I had heard of the book a lot of times, but just never got around to reading it. Maybe I will find something in there, of use.

(aside: how stupid is it that Ari Kiev also wrote a book called Trading in the Zone? I didn’t even know that was allowed! I can tell you right now that my first two novels will be called Harry Potter and the Sorcerer’s Stone and The Holy Bible: King James Version).

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

Check out this post by ZBS. I’m actually surprised to see him dummy trading. Back when I was doing it, I remember that he consistently would rack up huge gains. After reading a few of his journal entries, I can see why he gravitated towards dummy trading.

I only found out about dummy trading after my two biggest losing days, in my trading career. I followed up a $15,000 loss the next day by losing another five grand. I was in shock to say the least.

The first thing I did was to stop trading altogether (similar to Prospectus). I didn’t blog, so there was really no need to proclaim - I quit! However, I knew something had to change. Back then I used mental stops. I also had a bad habit of seeing a pattern form, and then I would make my bet. I would draw my trend lines, and say this is where I’ll get out. In real time, it was funny how one pattern would morph into another. I would draw trend lines to reflect this new development. In fact I would often average down/up. Many times I would congratulate myself for digging myself out of the hole. That’s what led to the blow up. I didn’t have a system at all.

When I became a dummy, my stops were quite clear. I also took Maoxian’s advice, and used hard stops. The setups were easily identifiable, and the entry and exits were set in stone.

Here’s my take on that before I go any further. From that period, I found out one important truth about myself. If the rules were clear, I could follow them.

I experienced a similar frustration to what ZBS is going through. I would have runners on my watchlist that I didn’t take. If only I had taken that trade instead. On days when the market trended strongly, and most of my watchlist fared well, then my account benefited. On days that the market reversed, I would be stopped out. However, I was following the system. I patted myself on the back. When people left comments on my former blog, I ignored them. I was following the plan. Some days were better than others.

I tried using Trade-X’s methods, but didn’t find that I could duplicate his success. Many other traders were able to do it, so it wasn’t his method. Eventually, dummy trading was responsible for me being able to get a clear head. I could see the overall goal again - to become a full-time trader. I owe a lot to TraderMike and Maoxian for that (I found Maoxian through TM).

Why am I not still dummy trading? The #1 reason is that I could never get over the frustration of watching trends reverse, and passively sitting by. There is nothing wrong with the method. In fact, Eyal uses it as his only source of income. So it obviously works.

My problem with this style was that it didn’t suit my personality. When I pulled up 3′ charts, I could see tradable trends. Did it mean I knew how to do it? No! Did it mean that I could eventually learn? Not necessarily. However, I knew that I would never be satisfied with the method I was employing. I wasn’t chasing success, in the sense that I was copying every trader out there. It was something inside of me, and I knew it.

The other problem (or benefit) I saw, was that on days where everything on my watchlist screamed, I made the most profit. With that in mind, I gravitated towards futures. Although I didn’t have a clue on how to trade futures, or smaller timeframes, I knew these two things: (1) honor your stops, and (2) I could follow a clear plan. Utltimately, I knew that I would benefit greatly on days when everything was screaming. I didn’t fare that well on tight range days with the dummy method anyway. Sometimes, I would, but not most.

Now it was just a matter of finding the right plan. I quit reading most of the trading blogs out there, because they offered nothing to my pursuit. My original idea was to watch nothing but the same market, on the same timeframe. I would let the market teach me. After several months of experimenting with every indicator my charting package offered, I was about to give up. I could have went back to dummy trading, but that wouldn’t solve the real problem. This isn’t like alcoholism. An alcoholic can’t drink! This was a matter of finding a style that fit me.

If you are dating a girl, and you can see that it won’t work out, do you: (a) marry her, (b) cheat on her, or (c) find a new girl.

Obviously, you wouldn’t marry her, would you? Well, some of you did, and that just proves my point. Option “b” is a viable option, but its not right. Option “c” is the only viable option.

Sometimes you need to trade a strategy, long enough, to see that its not actually for you. If you really understand it, you will profit from the experience, even if you move on.

Now, with a little over a year since I left the dummy experience, and traded futures exclusively, I can positively say that I did the right thing. I found a viable strategy with clear cut signals. My exits are set in stone. My entries require a little more art, but even if I took every signal, it is wildly profitable.

I’m not bellyaching about these violent trend days. I’m laughing all the way to the bank.

Now, why don’t I just let you in on the system? Trick Daddy says it best in the opening moments of White Folks TV, “don’t be like me player, be like yourself, be like Mike.”

Finding a trading plan is a lot like dating. You look around until you find one that fits you.

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

Wow, I’ve been looking around blogs tonight, and am surprised by how much carnage there was in the daytrading community. It’s funny, because days like this are supposedly why we are daytraders in the first place! We can wake up flat, and happily short everything in sight while the long-termers get margin calls.

So what happened? Well, there’s no help for the knife catchers, so let’s ignore them. The #1 complaint I see out there is that the action in stocks was too messy; gains would turn into losses before the real run would resume.

So, I’m going to put forth a suggestion, if you have trouble trading days like this: Don’t try to change strategies to match the crazy action. Even expert traders usually mess up when they attempt that. Instead, use your normal strategy, but only trade liquid ETFs. These will (almost by definition) trade smoother than individual stocks, and on big trend days they’ll have enough range to be worthwhile for trading. Towards the end of my equities trading “career” you may have heard me mention this in videos a couple times. Like, after big Fed announcements I would try to focus on QQQQ or GLD. Some of the more successful bloggers I saw today were trading QQQQ and SMH and XLF and the like. I don’t think it’s a coincidence.

If I could get all my struggling readers to do one thing in 2008, it would be to buy me a swedish massage at the Crescent Court spa. But, if I could get them to do two things, the second one would be to focus on this quote from my misconceptions series:

Trading is simple. You are complicated.

Once you understand that, you are ready to make progress. I promise that 95% of you don’t need a better system, or more time for study, or more capital, or a fancier platform, or a higher IQ, or anything else like that. All those things can increase your winnings, but they can’t help you win. If you’ve been at this a while, and you aren’t making money, you probably need more self-control.

I plan to scale up and make a LOT of money this year. It’ll be more fun for you to watch if you are doing the same, so I hope you’ll think about what I’ve said. If not, then at least take comfort in knowing that some portion of your lost capital probably went to me.

This has been your inspirational message for 2008. Savor it.

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

When I did my ego search to see where White Folks TV was being aired, it ended up in some strange places. Two of my favorites are what appears to be a Latino vacation destination (I love me some Spanish women), and this UFO website. I hope I don’t end up on some kind of watch list now.

Here is a short video showing my entry points versus LBR’s - The Anti System.

Watch this post's video on Youtube

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

Richard’s original article can be found here.

Watch this post's video on Youtube

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

Why is the music so old? Cause I’m old!

Watch this post's video on Youtube

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 think this idea works with Richard’s VWAP indicator, but it would apply to a moving average as well.

I have a chart setup that is supposed to identify trends. Its a 50 cent Renko chart with a few indicators to help. However, one problem I’ve been having, is quickly recognizing a chop zone.

Here’s the problem and solution. Let’s say you use a 10-period weighted moving average to identify the trend. When its moving up, and your trend indicators are in agreement, you want to be long. That part looks easy after the fact. How can you identify a possible reversal, or chop zone, before the fact? If you can do this correctly, you can stay in your trade longer, having the confidence to exit closer to the end of the move.

One way is to plot a double smoothed TSI using the same period as the moving average. On this chart, the red line determines trend. The double smoothed TSI has less lag, and turns in the opposite direction right as the congestion starts.

If there is a slope divergence between the two, do not initiate new positions. You also want to start looking for an exit when the divergence occurs. I wouldn’t use this to play reversals, because it doesn’t mean it will reverse. It just picks up the change in trend. Flat prices, at the very least, are a momentary change in trend.

If this helps, buy William Blau’s book. There’s a ton of great information, that will have you thinking in new ways.

Edit: I’m not going to paste the other chart, but I put the TSI on the price pane, so I can see the divergence easier. I followed it up with a couple of signal markers that identify when the slopes are congruent. This system will be called “Trading for Monkeys.” Monkey see, Monkey Do. Monkey Did!

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 still haven’t been able to resolve the issue with the intra day, EFI indicator. That may actually have been a good thing. I remembered a book I had by William Blau - Momentum, Direction, and Divergence.

Hopefully, one of these rocket scientist will read it, and explain it, better than I can. I’ve been coding some of his ideas into Investor RT, and I lucked into something. If I have the opportunity to trade today, I’m going live with this system (work in progress).

It looks like this Nerd Festival was a success.

EDIT: I’m down 1/2 point. Maybe a huge move comes this afternoon, but I’ll have to miss it. This is like watching paint dry.

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

Take a look at this. I wanted to post this chart separately, because I think its a better alternative than what I posted a few hours ago.

Notice how it identified the break (the Force remained strong during the consolidation), and nailed the Trader Vic 2B (note the subsequent drop).

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

Popular opinion would say to stay away from the 1st hour of trading. I signed up for the UTC, so I could learn how to do it. I could see I was missing opportunites, or worse, losing money. I’m pleased with what I found.

From this post by Dr. Brett, you can plainly see that you have to learn how to trade the opening hour.

Moreover, we can see that essentially all of the market’s upward trend has taken place during the first hour of trading. The first hour has accounted for about 1116 points of gain during 2007; the middle hours have lost about 780 points; and the last hour has gained about 719 points. What that means is that daytraders who sit out the first hour of trading have not, as a whole, benefited from the upward market trend. Indeed, there has been something of a downward trend to the market’s middle hours.

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