Tuesday, 16 February 2010

Cirque du Soleil

There were two reasons I started Kiki off on learning just one trade setup. The main reason I have already explained - get that "muscle memory working". The second reason is that some setups are harder to execute than others. By harder, I mean emotionally harder.

These are typically what I have called the "outside in" trades - the trades where you are picking tops and bottoms. You are the knife catcher at the circus. I think that it is important that new traders stay away from these as it is easy to develop bad habits from these trades.

Part of the process that Kiki has used to integrate these trades into her trade plan was to track them separately and to extract statistics separately for them. It may be that money management of these trades should be different. Maybe there should be no scaling, maybe there should be more scaling. She just doesn't know yet until she gathers more statistics.

This mornings open in the DowEuro50 future on Eurex was one of the tough trades in that there was no time to make your decision. Either you took the trade or you missed it. It was a POC trade like yesterday, but instead of opening higher and then trading down to the POC giving you plenty of time to prepare, today's trade opened right at the POC and then went vertical.

How can you make sure you can take these "difficult" trades? It's all a matter of preparation and envisioning. Kiki learned to do not only the pre-trade prep, envisioning what the market could do by looking at the context, but she also learned to update that vision as the market progresses, bar by bar. By doing this, she achieves a comfort level and can execute her trade plan without stress. Her vision is not a prejudgement but an assessment of what is possible and to a smaller extent, what may be probable. Things change as the market unfolds and the vision keeps getting updated. This way, there can be no surprises and she is not caught in the headlights.

More of today's trades. Trade 2 was outside in too as order flow turned at low volume level of the Profile of 11 Feb. Trade 3 was a continuation of the trade or an inside out trade as the EMA support did not hold and order flow continued sellers. When the 99EMA broke at the Keltner with the long CCI momentum down, I was looking for a 1.272 buy but the market held at the low of yesterday with a mini 1.272. My entry on the close above the MomDot was aggresive but the safer entry on the close above the peak of 2682 was not a good risk/reward as the possibility of a bounce down from the double EMAs didn't give enough reward.

After a break, I switched to the ES. There was an outside in Trade 1 - short at 1085.00 which was leaning against the top of the spike of  3 Feb. I was playing for the Gap trade and usually enter before RTH open. The trade worked like a Swiss watch when I covered at a tick above the 99EMA support at 1080.00 and I declared my day done. Kiki almost makes her living off this trade although I must admit that today's version was one of the easiest I have seen in recent days.


Click to enlarge

1 comment:

  1. Hi EL,

    there was a noticeable divergence between the ESTX50 and the ES which might have helped the gap trade.
    How did you get in your #1 ESTX50 trade? I only trade this instrument on a short time frame (but not a lot of trades only 4-8 a day). I could only cut some ticks when I entered the retracement at 2710. And I have to say I am not a good momentum trader - only retracements and fades in front of S/R. What were your triggers?