sold one unit at 1017.00 - still long 1 unit

Update

Here is a 30 minute bar chart of day session e-mini trading. I am currently long two units. The early selling this morning might have been a high volume downside breakout from the recent trading range (green arrows). As such it would have meant that the e-minis were headed for 998, a drop which would equal the early August reaction (purple dotted rectangle).

But so far there has been no follow through to the early morning break. The market is holding midpoint support at 1015 and breakout level support at 1016 (green dash line).This makes it look more like a terminal shakeout than a breakout. If I am right about this the market should begin to turn higher this afternoon. Any more selling below the 1014 level would mean the market is headed for 998.

In any case, once the drop from 1038 is complete I am looking for a move up to the next midpoint resistance level at 1054 (red dash line).

Long second unit at 1016.50

Guesstimates on August 31, 2009

September S&P E-mini Futures: Today's day session range estimate is 1015-1030. A move to 1054 is underway. The e-minis will reach the 1120 level by the end of October.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

Update

Here is a 30 minute bar chart of e-mini day session trading. This morning I thought the market would break out to new highs by a wide margin as a follow through to what I thought was an impressive show of strength yesterday. Instead sellers came in right away. By the time the market dropped 10 points below its open I figured that the high of the day was in and I sold the unit I had added earlier today. I am still long one unit because I think this market will break out to the upside from this trading range.

Today we have put in a day session range nearly as big as yesterday's. At the 1020.75 level these two ranges would be equal (purple rectangles). The 1020 level itself was the low of the trading range prior to yesterday's terminal shakeout (red dash line). Moreover, the rising trend line which connects the 976 low with yesterday's low currently stands at 1022. These three considerations make me think that 1022.00 is either the day's low or is very close to it.

Volume on this morning's break was lower than yesterday's at the same time. And yesterday's was in turn lower or equal to volume seen on several early breaks during the past couple of weeks. So I don't think that we have seen any sort of supply shock.

I conclude that today's action is just part of a normal trading range which should be resolved by an upside breakout. If the market should show a preference for trading below 1017 I would change my mind about this and instead expect a drop to 1000 or so before any substantial rally starts. But failing this negative development I remain bullish looking into next week.

sold one unit at 1028.00 - still long one

Long second unit at 1033.00

Guesstimates on August 28, 2009

September S&P E-mini Futures: Today's day session range estimate is 1028-104e4. A move to 1054 is underway. The e-minis will reach the 1120 level by the end of October.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

Update

Here is a 30 minute bar chart of day session e-mini trading. I thought today would be a bullish day but as you can see sellers took control of the market from the open. I am still long one unit and intend to stick with it unless the market starts spending time below 1015.

The 1015-1016 zone should prove to be strong support. The upside breakout level was 1016 and 1015 is the midpoint between the September 2008 high at 1291 and the November 2008 low at 739.

If this support should fail then I would expect a break about equal to the August 7- August 17 drop which was 40 points (purple rectangle). I still think this is the less likely outcome and expect the drop below 1020 to prove to be a terminal shakeout rather than the start of a significant drop. In this regard I think it is significant that the volume this morning has not been unusually high when measured against similar early morning drops recently (green ovals). I would also point out that so far today's day session range has been exactly as big as yesterday's, making it likely that the 1014.75 level is today's low or very close to it.

If I am reading this market correctly it is forming a low point that will define the lower boundary of a trend channel (green dotted lines). The next up swing should carry the e-minis to the upper channel boundary which is close to or even above midpoint resistance at 1054 which is defined by the May 2008 high at 1442 and the March 2009 low at 666.

FYI

My internet service provider will be doing repairs in my neighborhood today and/or tomorrow. Consequently I may be kicked offline unexpectedly and for an indefinite period of time. Hopefully no serious disruption of my trading will result from this.

Guesstimates on August 27, 2009

September S&P E-mini Futures: Today's day session range estimate is 1025-1040. A move to 1054 is imminent. The e-minis will reach the 1120 level by the end of October.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

Will hold overnight

I am going to hold my one long unit overnight. I think tomorrow will be a bullish day with a likely high of 1040. Support at 1015-16 is very strong and I don't think the market will trade below there before it moves as high as 1054.

repurchased on unit at 1025.50

sold all longs at 1026.00

Long second unit at 1028.25

Long one unit at 1023.00

Guesstimates on August 26, 2009

September S&P E-mini Futures: Today's day session range estimate is 1022-1038. A move to 1054 is imminent. The e-minis will reach the 1120 level by the end of October.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

Consolidation

Here is a 60 minute bar chart of day session e-mini trading. I think the past two days' activity is part of a brief consolidation that will be followed by a move to the next upside target at 1054 (green arrow). There is midpoint resistance at that level defined by the 1442 top of May 2008 and the 666 low of March 2009. At 1056 the e-minis will have risen as far above the early August high of 1016 as they dropped below it on the subsequent reaction to 976. You can also see the upper channel line (green dotted line) that intersects the 1054 level during the next day or two.

There is midpoint support at 1023 (dotted purple line). A break off of today's 1038 high as big as yesterday's break would carry the market down to 1024 (purple rectangles). So I think the market will find support near 1023 today or early tomorrow.

There is very strong support at 1016 and I expect that level to hold even if 1023 fails. There is midpoint support at 1015 defined by the September 2008 high at 1291 and the November 2008 low at 739. Of course the 1016 level itself is breakout support.

As you know I expect to see the e-minis trade at 1120 by the end of October.

sold long unit at 1031.25

Guesstimates on August 25, 2009

September S&P E-mini Futures: The 1035 upside target was reached yesterday. I estimate that today's day session range will again be 1020-1035. But I don't think we shall see more that a 20 point break until the e-minis reach midpoint resistance near 1054. The e-minis will reach the 1120 level by the end of October.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

holding overnight

I am going to hold my long unit overnight. Volatility has come down substantially over the past six months and 1016 breakout support is at my back.

long one unit at 1023.75

What's next ?

Here is a 60 minute bar chart of day session e-mini trading. The market has reached my short term target of 1035 (red dotted line). A reaction is underway. The biggest reaction on the move up from last Monday's low has been about 12 points and a 12 point drop from today's high would end near 1023 (purple rectangles). Midpoint support based on Friday's small reaction (purpled dotted line) also stands near 1023. So I think it is likely that this market will break to 1023 and then head higher once more. A reaction bigger than 12 points should still hold breakout level support at 1016 (horizontal green dash line).

Next upside target is 1054. This is midway between the May 2008 high of 1442 and the March 2009 low at 666. As you know I think the e-minis will reach the 1120 level, roughly the midpoint of the 2007-09 bear market drop, by late October.

It is worth noting that activity since the breakout above the 1016 level has been low. This means that current prices are not matching many buyers and sellers. My interpretation is that the market has not yet gone high enough to force the pessimists back into the stock market. And the optimists are looking for much higher prices than 1035. So I think this market has to go much higher before volume starts to pick up noticeably.

Hollywood Horror

Here is a link to my latest post on The Art Of Contrarian Trading.

Guesstimates on August 24, 2009

September S&P E-mini Futures: The 1035 upside target was nearly reached last night in electronic trading. But I don't think we shall see more that a 20 point break until the e-minis reach midpoint resistance near 1054. I think today's day session range will be 1020-1035. The e-minis will reach the 1120 level by the end of October.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

sold long unit at 1025.00

Long one unit at 1022.50

Bernanke Breakout!

Here is a 60 minute bar chart of day session e-mini trading. I thought today's day session range would be 998-1015. Why? The market had rallied in Europe to the high of the recent trading range (1016, lower dash red line). It had gone up three straight days, so I figured that the 1016 high would induce enough selling to push the market downward today.

But I was wrong about this. At 10am Bernanke began talking at the Woods Hole conference. The market proceeded to stage a high volume breakout to new rally highs (green oval and green dash arrows). I find this action a very impressive show of strength coming as it did after three straight up days. I also note that the entire rally from the July low near 865 has been relatively uncorrected, yet another show of strength and more evidence that the market will reach 1120 by the end of October.

For you Elliott fans out there I would point out that the move off of the early July lows has all the characteristics of being the third wave of the move off of the March low.

In any event I think reactions will be limited to 10 points or so until the market reaches resistance at 1035. This is the midpoint of the higher of two "stacked boxes" (pink rectangles) of equal height. The lower one is 40 points high and encompasses the recent correction. The top of the second box is at 1055. This is very close to the next midpoint resistance above the market at 1054 (higher dash red line). This is the midpoint between the May 2008 high at 1442 and the March 2009 low at 666.

Guesstimates on August 21, 2009

September S&P E-mini Futures: I think that today's day session range will be 998-1015. A swing to the next upside target at 1035 is underway. I think the e-minis will reach the 1120 level over the next few months.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

Out long unit at 1002.75

Bullish

Here is a 30 minute bar chart of e-mini day session trading. The market has spent nearly an hour trading above the 1000 level. This action has made the rally from 976 longer than the rally from 990 on the way down (purple rectangles). It now appears that yesterdays early morning, high volume surge had even more significance than I thought at the time.

I think the e-minis have started a rally to the 1035 level. If I am reading things correctly midpoint support near 995 (purple dotted line) should hold on any reaction. I have drawn a minor trend channel up from the 976 low. Its lower boundary should also be support going forward.

Long one unit at 1002.75

On the Gabe Wisdom Show

Yesterday the talk radio host Gabe Wisdom taped an interview with me about my book. You can listen to it here or you can go to this page to listen to or download the entire 60 minute show (click on the August 19show). I am talking during minutes 8-18, 22-27, and 32-38.

Guesstimates on August 20, 2009

September S&P E-mini Futures: I think that today's day session range will be 985-1000. A swing up to the next upside target at 1035 should begin from the 960-70 range. I think the e-minis will reach the 1120 level over the next few months.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00. Resistance is at 76.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 420. Next upside target is 500.

Update

Here is an updated 30 minute bar chart of e-mini day session trading. The market has rallied a tad above the midpoint of the drop from 1016 to 976 (horizontal dash red line). So far it has also rallied just a little bit less than it did on the previous big rally on the way down to 976 (purple rectangles). Finally, it has stopped just shy of a declining parallel trend channel.

Since we so far have not seen any significant increase in trading volume above the 994 level I am going to stick with my view that the market will drop into the 960-70 range before it rallies to 1035. However, I think today's action is yet more evidence that the drop from 1016 is corrective in nature. Should we see strength above the declining red dash trendline I would conclude that the 976 level marked the low of the correction and that the market is headed for 1035.

China Bubble Revisited

Here is my latest post on The Art Of Contrarian Trading.

Buyers appear

Here is a 30 minute bar chart of e-mini day session trading. My range estimate for today was 970-984. But during today's first 30 minutes the market rallied on higher volume than it showed on previous early rallies (green arrows). This is the first sign that sellers have had their innings and that the buyers may be taking control of the market. This also means that we saw the day session low at 978.

A high volume rally above resistance at the horizontal, red dash line near 994 would be very bullish. In any case I think we shall see today's high (red oval) near there and near the descending, red dash trend line. Upper channel line resistance (red dotted trend line) is at the 1000 level right now. I think a rally that high would mean that 975 ended the drop from 1016.

Guesstimates on August 19, 2009

September S&P E-mini Futures: I think that today's day session range will be 970-984. A swing up to the next upside target at 1035 should begin from the 960-70 range. I think the e-minis will reach the 1120 level over the next few months.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

October Crude: I now think that crude is headed down to 50.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 395. Next upside target is 500.

Update

Here is an hourly chart of e-mini day session trading. The market has recovered to the breakout level denoted by the horizontal red dash line. The volume on today's rally has been low. The size of the rally has just about matched the size of the last rally on the way down (purple rectangles). Morevover, the e-minis are not far from the descending red dash trendline.

All in all, the picture I see now is one of a market that will make new reaction lows before it moves up to the 1035 level. I think we shall see a drop down pretty close to 960. There the market would have fallen about as much as it did during several previous reactions over the March- May period. It would also be just a shade above the 957 June high which now is support. And by the time it reaches 960 it should be resting on the parallel green dash lower channel line.

I remain very bullish looking ahead more than a week. By the end of October I expect to see the e-minis trade above 1100.

sold longs at 988.50

sold second unit at 982.75 - still long one

Long second unit at 983.00

Long one unit at 981.00

Guesstimates on August 1, 2009

September S&P E-mini Futures: I again think that today's day session range will be 978-990. A swing up to the next upside target at 1035 is underway should begin within a day or two. I think the e-minis will reach the 1120 level over the next few months.

QQQ: Support is at 38.80. Next upside target is 42.00.

TYX (thirty year bond yield): Support is at 4.20%. I think a swing to above the 5.00% level is underway.

TNX (ten year note yield): Support is at 3.25%. I think a swing up to 4.30% is underway.

Euro-US Dollar: There is no sign of a top. Support is at 137.50 and I think the market will continue upward to 146.00.

Dollar-Yen: The yen has started a move up to 105.00.

September Crude: I now think that the rally from the 58-59 zone is over and that crude is headed down to 50.00.

GLD – December Gold: Still expecting a move to 1070. Support is at 900.

SLV - September Silver: Silver is headed to 1700. Support is at 1250.

Google: Support is at 395. Next upside target is 500.

The Truth About Trading - Part II

Part II

How Amateurs Approach the Market.

edited by Carl Futia

(original source unknown)

---

This post is for people who are struggling with their trading, not being profitable and finding themselves working extremely hard to no effect.

I found very interesting a recent post 'Who uses stop losses?' and the various replies about how stops are necessary, professional, business-like, etc. That post and the ensuing comments confirmed what I already knew: the retail trading crowd thinks and acts like a flock of sheep.

Books and information about trading all say the same things. They emphasize money management, tell you that it is stupid to average down, tell you to use stop losses, risk 1% of your account, and other common propaganda.

The interesting thing is that people who talk about the value of stops, money management, etc. appear to have gotten their ideas from a book. This include the authors of those same books! It is a never ending process, a constant recycling of bad ideas. I think that those who write trading books that explain how to trade aren't particularly good traders themselves. Why?

I think you must embrace uncertainty to succeed as a trader. Those who write books, teach seminars and so forth are just trying to find a way to make money with certainty because they can't trust their own trading to do it or because they cannot live with the ambiguity and uncertainty of constant involvement with the market.

These ideologies that trading books offer are accepted as trading wisdom in the community of amateur traders. I was fed all this when I was learning to trade.

But I got lucky. A very successful trader told me early on in my career that 95% of traders fail. Therefore, to succeed he said that you have to do the opposite of what they do, you have to think outside of the box. I've always tried to think in a unique and different way from other traders and I believe this is in large part responsible for my success.

All across the internet and in all books about trading you will find the following assertions:

• High probability setups + Discipline = Success
• Always use stop loss orders. Have a specific risk-reward ratio in mind. Know exactly what you will risk in every trade
• It is stupid to have a risk-reward ratio of less than 1:1
• It is stupid to aim for very high win percentages
• The entry price is the most important detail.

Almost all amateur traders buy into this ideology. Why? These rules produce the illusion of certainty in the market place. You know your risk and that's it. There is no chance of becoming emotional because you failed to use a stop and therefore busted out you brokerage account. You don't have to worry about having to explain to your husband, wife, or friends that you are not as big an idiot as you seem to be, that trading is still something worth doing.

But in the market certainty doesn't exist. Any rule that produces the illusion of certainty just makes it easier to fail as a trader.

Admittedly I went through a phase of having a set risk-reward ratio (1:2) and risking 1% of my account, thus calculating my position size must be (x). My stop loss was frequently hit. I was going nowhere fast.

I printed off all the trades I ever did and analyzed them in detail, trying to find what went wrong. I came to some conclusions.

1. I'm buying high, I'm buying on a higher close, buying in a late signaled uptrend rather than buying on falling price.

2. Price is volatile. My stop is getting hit. I can't forecast price fluctuations with enough precision to be able to place a 5 pip stop loss.

I concluded that using a stop loss represented my effort to predict the market's short run fluctuations, to treat the market as if its movements were certain. But I couldn't do it.
 

I tried to move away from this idea and explore how I could trade without a stop loss.

During this learning process the fact 95% lose was a uppermost in my mind. Whatever traders who were losers wrote I would turn on its head and try to do the opposite. This was my way of thinking outside the box. And I believe that you shouldn't follow the flock.

I began to see trading as an art instead of as pure calculation. It is less about certain maths and more about movement.

It's about watching the market dance, letting it move up and down without placing too much significance on any particular jiggle.

I decided that I just wanted to take a piece of these constant fluctuations and not try to predict them.

I concluded that trading is not about having a certain risk-reward, not about applying the same risk to every opportunity, not about exiting at a pre-determined level. It is about making adjustments as the market produces new information, as it moves move around on your mental map of its behavior.

It's extremely hard to make money from the common wisdom you find in trading books. But if you look past such "wisdom" you can see trading doesn't have to be so complicated and time-consuming.  

Volatility can produce profits for you without you having to be a prophet! All the prop firm traders I know who are successful understand and base their methods on this insight. All the successes I have had in trading arise from this observation.

Professional traders win by applying their own judgment and experience to judge the market's position on their personal market maps and then letting the market's natural volatility work for them. They don't waste their time back testing strategies.

So how can you change your current quest to trade for a living?

1. Read my previous post about how to learn to trade, I seriously think if traders learn to read the markets, they will be successful. Read the market, take in the new information is gives you each hour and each day.

2. Try to escape from common wisdom and general public beliefs. Start thinking outside the box, Start looking into volatility, high win percents and try get past your human fears and uneasiness with ambiguity. Don't use hard stops.

3. Average down and pyramid with risk management.

4. Enter when price is falling.... In an uptrend.

I strongly believe averaging down if done as a planned strategy and not as an effort to deal with a loss is an easy way to profit... That is from personal experience and it is expressed in my account balance.

Thanks for reading.

Glad to help.

Here is Part I

sold long unit at 978.00

The Truth About Trading - Part I

Here is an edited version of a post by a fellow named Ziad Masri. It was posted originally on the EminiPlayer blog in July of 2009. Later a guy who goes by the name Gladiator X added some of his own thoughts to Masri's post.

I edited these posts to make them more readable and am posting the result in two parts. While the ideas discussed in Part I come largely from Masri's original post, he didn't want me to attribute them directly to him since the post also contains some of Gladiator X's thoughts and because I had edited a number of details. I really don't know the original source of Part II. It was posted by Gladiator X on Trade2Win .

I think both parts explain the truth about trading and about learning to trade more clearly and accurately than anything I have seen previously.

Part I

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Why do most traders fail? Change your ways. Now.

(includes subtantial parts of a post by Ziad Masri)

edited by Carl Futia

I am someone who trades for a living. I have less than 10 years experience but I feel that the mental energy, time, and effort I have put into trading is enormous. I think I have had success because I did the REAL HARD WORK, work that most people want to avoid.

Hard work isn't reading a trading book, applying to a broker, opening a chart and spending hours back testing an EMA crossover. It isn't sitting for 12 hours per day testing the crossover on different markets and then sitting 4 hours waiting for the signal to emerge because in the back test your found it to be 'high probability'. If you are doing this you're wasting your time, spinning your wheels without moving. You are avoiding the truth of trading.

Here is the truth of trading. A trader must learn to identify the direction of the market's trend in the various time frames which are relevant to his trading goals. But the trend direction is often ambiguous. So a trader must learn to face trend ambiguity and thrive in it. Trading is not about clarity. It is not about setups and signals - not about EMA crossovers, three-higher closes for entries, waiting for pin-bars at support.

These sorts of setups and signals may work for a small number of successful traders, but for most aspiring traders they are useless. Why? Because they are NOT the essential part of the trading process. Traders who use setups and signals successfully have already built a mental map of market behavior. Such a map identifies the market's condition and trend in the various time frames which concern him. The current position of the market on this map determines the value of a setup and signal in particular contexts. The way such mental maps are developed is difficult to explain.

Here is what I mean. I could explain a specific setup of mine to you, one that is extremely easy to follow. But I couldn't explain how I interpret the time and sales window and compare it to order flow and market action. And it is this latter interpretation that determines whether or not the trend direction is favorable to the setup. This skill at interpreting time and sales in the context of market action is one I have developed by watching the market carefully and by taking hours and hours of notes on its behavior.

It is this experienced recognition of the direction of the current market trend that gives me an EDGE over other traders. Only after I have made this judgment do I start paying attention to setups and signals.

Knowing the direction of the market's various trends tells me whether my setups are likely to be good ones or bad ones. Most aspiring traders can't make these distinctions. To them all setups and signals look the same. When they take a loss after following one all they simply say "oh it didn't work" and moan about it.

These people have not started the really hard work - the work they need to do to be successful traders. They will have to spend weeks or months watching markets trade. They will have to take notes on what they observe and start building a mental map of market behavior. They will have to learn to exercise judgment is assessing the market's condition and trend - and to have confidence in their judgments and the courage to act upon them.

On these forums hundreds of people talk about how to be a profitable trader. But most of them not profitable themselves, at least not to any significant degree.

Speaking as someone who makes A LOT of money from the markets I say that it was never a specific system or price action setup that finally made me consistently profitable. Rather it was my extensive study of market behavior, of the "tells" it gives that help me identify the market's trend. I had to learn to embrace the inherent ambiguity of all market behavior - to learn that there are no certainties, only probabilities. I had to create my own interpretation of everything, even though I used the knowledge I found in books about the market and trading as a starting point.

I am now able to trade without a system, without a detailed plan but with money management. All the guru's say YOU NEED a specific entry and exit plan but I don't use one.

Believe me, the reason MOST traders lose is because they fail to embrace uncertainty. They try to convert the inherent uncertainty of market behavior into something that is a sure thing in the sense that every trade they make will be dictated by a fixed set of rules. They spend fruitless hours trying to find a system of setups and signals that will make money in the markets. They don't learn the $tick relationship to price themselves but instead look online and see what others have found. They are unwilling to do their own thinking . They don't spend the time needed to develop their own skills of market observation and interpretation.

It took me 4 months to become profitable. Many of you won't believe this. But the reason I was able to do it so fast was because I cut out all the crap. You may believe you are working hard - you may have been up for 8 hours last night testing if the strategy you just read about in a trading book is a good one.

But I say you haven't really started doing the hard work yet. Until you do you will remain unprofitable. You won't find the high-probability, profitable setups you seek. To do this you must first study the market's behavior and understand it - learn how to identify the market's condition and trend. Only after you have mastered this aspect of market interpretation that you can you work with setups and signals.

It will be your understanding of the market's trend that turns your setups and signals into high probability, profitable ones. Setups and signals by themselves cannot do the trick - they cannot turn you into a successful trader. They do not incorporate and understanding of the market's trend and condition. They miss something that only your personal judgment can provide.

Let me give you an example that might open your eyes. Have you ever played a shooting game like Call of Duty 4 or Halo 3? The players who are very good at these games haven't got a system, they don't spend up at night thinking about the best place to camp with a shotgun. They practice playing the game. They master it.

The difference between a winner and loser isn't that the winner knows a secret, or paid someone to teach them the secrets, or have a system of using power-ups to beat people. The winners win because they are more skillful, they have learned how to play, they have mastered the game. How did they do this? By playing the game, by being continuously involved in real time competition. 

The same is true of good athletes in any competitive sport. They don't plan their moves against their opponents in advance. Instead they play by following general principles they know work most of the time, and they rely on their game experience to make the right play in response to their opponent's action in the context of the specific game situation. Yet despite their skill and experience every great athlete will tell you that he/she fails frequently.

Try hard to think about what this means. I think it demonstrates my point quite clearly. The good players are genuinely skilled. They do not follow mechanical rules in their play, rules that anyone could learn by reading a book. Whoever heard of a football player becoming great by reading a book on football?!! But aspiring traders seem to believe they can become good traders, make good profits, by reading books on trading and checking out the statistics of every setup and signal under the sun! What's wrong with this picture?

A genuinely skillful trader is someone who can apply his knowledge of market behavior in any context, in any environment. In some situations he knows that certain setups and signals are genuinely useful, but in other situation he avoids those same setups and signals like the plague.

CONTEXT! It's all about context. Stop trying to trade on signals and setups that pretend that the market context is always the same. You must instead focus your efforts on identifying the direction of trends. This is inherently an ambiguous and uncertain process. So you must embrace uncertainty! Embrace ambiguity! Accept the fact that you won't get things right every time.  But at the same time learn to trust your judgements without the support of a rigid framework of mechanical rules.

Here's the situation as I see it for most users on the forum. You've have been spinning your wheels while thinking that you are getting somewhere. You are trying to learn how to trade in the wrong way.

I see that most aspiring traders focus all their attention on "set-ups" and on finding out which combinations of indicators work. But these people are never going to become profitable. Why? They are following the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and they hope that these setups can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions in all contexts. But I have got news for you: you CANNOT take the guesswork out of trading!!!

I offer this opinion as someone who started last year with $30,000 and ended with $150,000 without a single losing month. I think I was successful because of the way I went about learning and what I focused on. My learning process was very different from the ones suggested on this forum. I learned that while psychology is huge it is not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what trading is truly about. 

Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.
 
And yet traders left and right want to make it simple and certain. They want to reduce it to a few simple set-ups to trade with discipline. But the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.

So what's the solution? Is the problem in the simple set-ups themselves? No, it's how they're being used.

The bottom line is that every trader needs to learn to READ the market, identify the direction of the trend which concerns you. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT.

Once you can read markets in an unbiased way you can then choose to employ "simple" set-ups to enter and exit. But the real work will be in learning to READ THE MARKET to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.

Now I know most traders try do this to some extent, but their main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.

Is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money? If I've learned anything, it's that the market rewards what is hard to do.

It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. But this is an inevitable part of the trading process. You must stop trying to avoid it by demanding that things to be clear cut.

Yes, I know, it is hard to be disciplined when there's so much ambiguity, so much uncertainty about just what trade to make.

But as a trader it is impossible to eliminate uncertainty. Don't try to avoid it by looking for simple set-ups or some straight-forward, simple, always- right method. Instead, train your mind to deal with the uncertainty.

How can you learn to do this? You must be constantly engaged with the market, always trying (and often failing) to figure out what the market is trying to do (go up or down). You must learn from experience.

In my own case each and every day I would take notes in a journal. I would try to interpret the market's action and try to figure out trades that would take advantage of my analysis. I took note of the ideas that seemed to work and those that did not. I wasn't focused on paper trading, or on recording my emotions, or anything of that sort. Instead I paid strict attention to the market's action and to the information I thought it was giving me about its condition and trend.

Everything in my journal was about my own perception and interpretation of the market's action and what it was telling me about its trend direction. 

Day after day, week after week, I kept on making mistakes, wrong calls, being clueless about what was going on, not knowing how I should trade, and not knowing if my views made sense or not. Yet I refused to be discouraged and I continued taking notes and learning.

I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.

As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, can be quite complicated. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some contexts I can buy low and sell high. In others I have to buy high and sell higher.. And so on.

I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had a lot of background in technical analysis. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was contrary to what the general wisdom says about simple set-ups and exact rules.

In the end you have come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Do you think a few simple set-ups could make you rich?

I don't mean to imply that you need complex mathematical models. Far from it. What I do mean is that you must develop a mental map of market contexts and the experience and skill to tell where the market currently is on that map. This will take time, effort, and lot's of frustration to develop. And you won't be able to do this if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.

Right now your learning curve is stagnant because you're not truly involved with the markets and their behavior. You are acting like a statistician who is separate from the market. Your day is wasted in waiting mode. You are not in the observing and absorbing mode. Because you fear loss you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.

So I think you need to make a mental shift. If the path you have followed hasn't brought you to your goal, try my path instead! Prepare to face uncertainty and ambiguity, the essence of financial markets. But don't be afraid. The market isn't out to hurt you. Success in trading requires the ability to be at home with ambiguity and uncertainty, to be able to take a market stance while accepting the fact that you cannot predict the future with any degree of certainty. This is what trading is about. This is why it is an ART. Once you change your focus and your learning process everything, including success, becomes possible. Until then it'll be a distant dream that keeps appearing to be so close and yet stays so far away.

So you need to re-align your thinking and get involved with the markets. Get a trading simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, you will progress.

Face these challenges. The stuff you have heard about learning setups and applying discipline comes from gurus who cannot trade, who give advice based on their failed ventures.

These challenges most people find difficult to face. This is why most are not successful. If you can't do this profitable trading will remain a forlorn hope of yours.

I wish you all good luck and I hope some of you find this helpful. This is what I am giving back to the trading community, I hope someone of you have an epiphany over what I have said.

When I was in the 'holy-grail' search mentality, a friend explained all this to me. I took what he said to heart, and I believe this is why I am consistently profitable today. This the only real secret I can pass along to you as traders.
Good luck! 

The Truth About Trading - Part II

How Amateurs Approach the Market.

edited by Carl Futia

(original source unknown)

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This post is for people who are struggling with their trading, not being profitable and finding themselves working extremely hard to no effect.

I found very interesting a recent post 'Who uses stop losses?' and the various replies about how stops are necessary, professional, business-like, etc. That post and the ensuing comments confirmed what I already knew: the retail trading crowd thinks and acts like a flock of sheep.

Books and information about trading all say the same things. They emphasize money management, tell you that it is stupid to average down, tell you to use stop losses, risk 1% of your account, and other common propaganda.

The interesting thing is that people who talk about the value of stops, money management, etc. appear to have gotten their ideas from a book. This include the authors of those same books! It is a never ending process, a constant recycling of bad ideas. I think that those who write trading books that explain how to trade aren't particularly good traders themselves. Why?

I think you must embrace uncertainty to succeed as a trader. Those who write books, teach seminars and so forth are just trying to find a way to make money with certainty because they can't trust their own trading to do it or because they cannot live with the ambiguity and uncertainty of constant involvement with the market.

These ideologies that trading books offer are accepted as trading wisdom in the community of amateur traders. I was fed all this when I was learning to trade.

But I got lucky. A very successful trader told me early on in my career that 95% of traders fail. Therefore, to succeed he said that you have to do the opposite of what they do, you have to think outside of the box. I've always tried to think in a unique and different way from other traders and I believe this is in large part responsible for my success.

All across the internet and in all books about trading you will find the following assertions:

§  High probability setups + Discipline = Success

§  Always use stop loss orders. Have a specific risk-reward ratio in mind. Know exactly what you will risk in every trade

§  It is stupid to have a risk-reward ratio of less than 1:1

§  It is stupid to aim for very high win percentages

§  The entry price is the most important detail.

Almost all amateur traders buy into this ideology. Why? These rules produce the illusion of certainty in the market place. You know your risk and that's it. There is no chance of becoming emotional because you failed to use a stop and therefore busted out you brokerage account. You don't have to worry about having to explain to your husband, wife, or friends that you are not as big an idiot as you seem to be, that trading is still something worth doing.

But in the market certainty doesn't exist. Any rule that produces the illusion of certainty just makes it easier to fail as a trader.

Admittedly I went through a phase of having a set risk-reward ratio (1:2) and risking 1% of my account, thus calculating my position size must be (x). My stop loss was frequently hit. I was going nowhere fast.

I printed off all the trades I ever did and analyzed them in detail, trying to find what went wrong. I came to some conclusions.

1. I'm buying high, I'm buying on a higher close, buying in a late signaled uptrend rather than buying on falling price.

2. Price is volatile. My stop is getting hit. I can't forecast price fluctuations with enough precision to be able to place a 5 pip stop loss.

I concluded that using a stop loss represented my effort to predict the market's short run fluctuations, to treat the market as if its movements were certain. But I couldn't do it.

I tried to move away from this idea and explore how I could trade without a stop loss.

During this learning process the fact 95% lose was a uppermost in my mind. Whatever traders who were losers wrote I would turn on its head and try to do the opposite. This was my way of thinking outside the box. And I believe that you shouldn't follow the flock.

I began to see trading as an art instead of as pure calculation. It is less about certain maths and more about movement.

It's about watching the market dance, letting it move up and down without placing too much significance on any particular jiggle.

I decided that I just wanted to take a piece of these constant fluctuations and not try to predict them.

I concluded that trading is not about having a certain risk-reward, not about applying the same risk to every opportunity, not about exiting at a pre-determined level. It is about making adjustments as the market produces new information, as it moves move around on your mental map of its behavior.

It's extremely hard to make money from the common wisdom you find in trading books. But if you look past such "wisdom" you can see trading doesn't have to be so complicated and time-consuming.  

Volatility can produce profits for you without you having to be a prophet! All the prop firm traders I know who are successful understand and base their methods on this insight. All the successes I have had in trading arise from this observation.

Professional traders win by applying their own judgment and experience to judge the market's position on their personal market maps and then letting the market's natural volatility work for them. They don't waste their time back testing strategies.

So how can you change your current quest to trade for a living?

1. Read my previous post about how to learn to trade, I seriously think if traders learn to read the markets, they will be successful. Read the market, take in the new information is gives you each hour and each day.

2. Try to escape from common wisdom and general public beliefs. Start thinking outside the box, Start looking into volatility, high win percents and try get past your human fears and uneasiness with ambiguity. Don't use hard stops.

3. Average down and pyramid as a planned tactic with risk management.

4. Enter when price is falling.... In an uptrend.

I strongly believe averaging down if done as a planned strategy and not as an effort to deal with a loss is an easy way to profit... That is from personal experience and it is expressed in my account balance.

Thanks for reading. Hope this helps.