Tuesday, 11 May 2010

Trade the Trend?

Trend days are about 2 or 3 per month. So for day traders, trading the trend is not a profitable strategy. That leaves 2 other ways to trade: fading a move or going with a move. A fundamental part of your trading plan is the identification of the type of moves you are trying to capture. If you haven't done that then you may find it hard to both work out how to enter a trade and when and how to exit.

So, the first part of my trading plan is under the heading: What's My Business. As soon as I have identified this I can go on and work out the rest. Just going into a day's work and winging it will not cut it.

I'm not saying not to trade a trend. If a trend develops on those 2 or 3 days of the month, I'll exploit it but within the parameters of my trading plan. I am a very short term trader as most of us are that come from the floor. However, my plan calls for scaling out and re-entering so I am able to benefit from the trend days while at the same time capturing the smaller average wins that the market gives me on most of the other 17 days.

There were 2 trades of the day today. One of them was at 4am this morning, London time. I usually wake up at 5am and often earlier. In the last couple of days I have gone straight to my computer to see what was happening. There was a great sell of the ES at about 4.20am London time when support broke and momentum reversed to the downside. I took about 5 handles but missed the re-entry continuation as was having coffee. The 5 points took just over an hour to get.

The second trade was the Gap trade when the RTH ES market opened. It was a clear buy at 1146.00 after resistance broke. First stop was the Fib at 1151.00. This time the 5 points took only 18 minutes. These gap trades can be your one and only trade of the day once you get the knack of them. I held the balance as the MomDots held as the Fib blue rectangle was attacked on the way through the VA. The POC did not hold and my target became 1156.00, the previous close and almost VAH. I exited the whole position just above the rectangle and then began eating the elephant one bite at a time as you can see from the green arrows. The market was nervous and gave me a series of two point trades, retreating back to support where I was buying. The last gasp to 1156.00 was finally made with a bit of tooing and froing.

There are 3 "setups" that can give you a great living trading. This is one of them. I'm going to spend a lot of time on these 3 trades during training. Lots of nuances but not hard to learn when you see it live. Kiki learned the gap plus one of the other two and got to CP. The third was next and she stayed with these 3 for quite a while. Even now, most of her trades are these same ones as they have a very high win rate and it's stress free for her. Very important.


  1. Hi EL,

    Only 2-3 Trenddays a month goes for the ES, but whats about the 6E/EURUSD in recent days?

  2. Peter, Euro trades 24 hours and I look at each distribution separately. Currencies trend for longer when they are trending and you get a number of trend days in a row or nearly in a row when there is an adjustment to what the expectation was. We are in interesting times now, not the norm and I am trading accordingly.

  3. Hi EL,

    just to get you right...

    Would you label a continuation trade a "trade with the move" or do you "fade the move" in this case as you are getting into the trade after a reversal, f.e., after the corretive downmove in an uptrend is reversing?

  4. Peter, for me, a continuation trade is a re-entry in the same direction of the previous trade after either an exit or after a pullback or after a break of the Fib 1.272.

  5. Cameron has done a one-eighty and now supports a financial transaction tax. How do you think this will affect your trading?


  6. Hi El,

    I have still some problems with the 33 ema "cross trade".
    todays opening (15:34 my time)showed a cross to the downside. We have a gap @ 1151,75 so i was thinking that as a target but trade didnt worked. Did i overlooked something here?

    see chart: http://screencast.com/t/NjBjMWQ1MjM


  7. It won't have any effect. I don't trade UK markets or through a UK broker. It may affect stocks in the UK but I don't think so as it will drive biz out of here.

  8. O66, I have been just buying since before the RTH. The 45CCI shows upwards momentum and there were several pullbacks to the 33EMA support which were the buying oppoetunities. Nett CVD was buying too. I have had only 1 sale at 1164.50 when the market overstretched the rubber band.

  9. EL,

    On my chart cvd was down. (datafeed differences?)
    45CCI was above 0 but i have seen many charts where you take the trade where this is the case if all other things line up, such as 6 cci below -100, 45 cci pointing down, 2 negative delta bars (with good volume) in a row, close below 33 ema, enough distance to resistance for first target, etc.

    i must be missing the little nuances here....but my win rate is low on these trades.

    thanks for the help.

  10. O66, For me the big thing today was that the 45CCI had been above the zero line and stayed there. If you look at my trades today on the chart, the long buying tail in the Profile, I only thought of longs.

  11. 066,

    Sorry to butt in on you and EL's conversation but I just had to comment here. CVD was the exact same on both you and EL's chart. Look closely at his chart and at the chart you provided in the link...same exact picture. What EL saw and what the market was saying at the open was that the overall volume and trend were up. Yes, there was pullback to the EMA and yes, CVD had turned negative for a few bars but the bigger picture pressure was up, up, up.

    Look at the trend of the market prior to your entry, look at the trend of the CVD, look at the VB. Attempting a reversal trade at that location because the very short term VB and CVD had turned down was missing the forest for the trees. Don't look at these tools as a mechanical indicator that says if X then Y. Attempt to look at the big picture and the context and to make a judgement on a broader scale.

    If you would have been cautious because your intuitive, right brain was saying a reversal was unlikely at that point in time, then you would have entered long on the very next bar (or at the very least, the bar after that) and would have had a very nice trade.

    Discretion is the key here and you must have an understanding of the broader picture. Again sorry for the rant....I've just been through the learning curve myself and I'm finally starting to "see".

  12. Thanks for the answers.
    it's obvious that i'm doing something wrong.
    For some reason this is a difficult area for me. i need to figure out when to take the trade and when to pass.

    see this chart from EL

    Imo trade 2 is same as my chart

    for now i decided to pass on these trades and only take them when conmfirmed like trade 8 on this chart

    Thanks again!