Friday, June 15, 2012


I remember a Saturday Night Live skit a couple of years back where they were talking about being a Hot Mess. When I look at many charts right now, the same thought comes to me. The ES above you can see took out it's last pivot high made before the lowest low, so that is a short term trend change. It has now made a higher short term low, which should confirm the trend change. We have not as of yet taken out the high of that spike Sunday session, so it is not full speed ahead to the upside yet.

Overall to me this is just very choppy and I don't like to trade in pattern formations like this. One trend indicator I look at is the first panel under the price, which you can see confirms the down trend. This indicator is far from the grail, sometimes it changes trends right when the market bounces back when it is in a trading range. I don't give this much weight when it has the look it currently has.

I still want to short this market about 30 points higher from here on a weekly basis, on a daily basis this is just unclear to me here.

Natural Gas certainly went for a ride after I exited my short trade yesterday.

I was asked if I reversed and went long and the answer is no. One of the absolutely brutally hard things about trading is how different things look after the fact vs before hand. You can look at this chart and see a really small range bar in the vicinity of a major low. You could argue, well this is a test of the low and a volatility break out opportunity. Perhaps.

The reality for me is that no matter how this looks right now, there is absolutely nothing I have ever studied that performs even marginally well over a large number of trades, that would tell me to go long with a setup like this. If you just look at the chart I posted yesterday, which was how it looked right when I got stopped out of my short, there was no way of knowing if I had not just blown it by having a stop too close. There was nothing bullish at all about it other than it was an outside bar for the day at that time.

The trend was clearly down on all time frames, and the big money is made with the trend. I did make $1700 per contract on the short, so that was a decent trade. Certainly the really good trades make way more than that, but sometimes when you trail them down, you get taken out. It just is what it is. For anyone looking at this thinking you need to study to find a way to take advantage of days like this I will save you the time. THERE AREN'T ANY!

Even though the long would have made more than the short did if it were exited right here, ask yourself which trade was easier to see going in? Which one was easier to sleep at night with? Which one had the highest risk? Reversal trading is very alluring, but it is oh so difficult to do well. I look at new ideas every week to try and find ways of picking market turns. I am a very good idea guy, I can't come up with any. I have been looking for 20 + years. Almost all with a few exceptions, of my best trades, are in the direction of the prevailing trend in the market.

I am flat right now, my Bond and Yen trades have just rallied too much so there were no fills in any of those orders. Other than that I do not see much for today right here.

Have a nice weekend


HT said...

Great article CJ. I am waiting to short the market as well. Maybe next week there will be a sell signal after the greek elections. Hopefully.

Michael Tredr said...

"One of the absolutely brutally hard things about trading....fact vs before hand"

Boy, you couldn't have said it any better, I watched frozen last night as the Yen rallied. Took a huge hit and now that's the hole I'm working against in the PnL.

Reversal trading to me, and that can also kiiiiinda be applied to the Yen trade, is almost a myth. I say almost because I reserve the chance that there are people in the world that can do it very very well. as for everyone else, there's just too much risk involved and in a playing field where most market participants have very limited capital - trying to find indicators for that will leave you broke more times than yielding anything. I've learned this the hard way in my various past retail stints.

It's tough when you've got an established trade going on and then the price rallies against you suddenly, but that is - like you said - one of the brutally hard things in this businesses. that natty gas trade was as good of a trade as anything - it just ran its course.

i got long the SP00s and am going to hold into the weekend. I'm thinking the Fed will make an announcement of some sort during the weekend and we'll see a move in the markets (but its moreso because i've had a buy signal on it since last week). i hope it doesn't do the reversal thing like natty or yen, lol.

have a great weekend!

Vikas said...

Hi Chris, I was reading your comment on your previous post where you mentioned your stop on a short was about 20 points above? Is this common? What is the risk/reward you usually go for with a trade like this? Am curious because I've been reading about having such really wide stops to allow the trade to work in your favor, and control risk by reducing position size, and I'd like your thoughts on this. :-) Thanks.

Chris Johnston said...

20 points is just an arbitrary number which in my opinion is actually a small stop, it is only $1000 per contract. Most stops I use are bigger than that. I think in the ES if you are wrong by 20 points that is enough to convince me the trade is no good.

Do not get into that crap of scalping and using a 1 point stop, nobody alive makes money doing that regardless of what people claim.

If you just enter at the market you have to give a trade some room. If you enter above or below highs and lows that is different and you can carry stops on the opposite side of the ranges on those.

Vikas said...

Got it, thanks. Thats turning out to be my experience as well. One more question, how long would such a trade last? 1-3 days? Do you use something like fibonacci levels, or the average true range, etc to decide when to close the trade? Or do you trail the stop and let it run?

HT said...

CJ - Is it possible for you to post the E-Mini chart with POIV indicator to see market fundamentals? Thanks in advance!

Chris Johnston said...

Good trades would last longer than that, bad ones stopped probably in a day or two. I establish targets and trail stops while trying to get to them in general. I don't use Fibs at all, they don't work. Draw enough lines on a chart and something will happen in the vicinity of one of them. That is all fibs do.

I will have to do the E mini chart tomorrow, I just finished my post for today. POIV is not of much use in a market pattern like we have right here.