Posts by trader7757

Day Trading the ES E-mini and Defining the Trend

By trader7757, 15 July, 2010, No Comment

The term “trend” is bandied about with fierce regularity among traders of all types. Long-term traders look at trends in a far different perspective than short-term e-mini day trading. Which leaves most traders, especially novice day traders, in a quandary. In general, a market trend is the tendency of the market to move in one direction for a period of time. I think that’s where most e-mini day trading become confused, as the “period of time” is a variable of many dimensions.

ltra-long term market trends can be measured in periods of 5 to 20 years. On the other hand, a day trader may look at a trend in terms of hours. With all this diversity in the period of time it takes to establish a trend it is often difficult to specifically define what qualifies as a trend.

Before we go much further, I think it is important to understand that in the academic world there is no trend. The current theory being taught, Efficient Market Theory, claims that equity pricing always discounts all known factors into the current price of the equity in question. That being said, there is no room for the term trend in efficient market theory because each price properly equates the value of an equity any given time. To take this to the point of ridiculousness, Efficient Market Theory would have to accept the notion that a given equity increases in price and value, at least intrinsic value, from minute to minute. Of course, recent financial calamities in the markets have led to no small amount of skepticism among traders and Efficient Market Theory. I would also note that traders, as a whole, have never embraced Efficient Market Theory.

For intraday trading, which is really no more than trading during a daily trading session, we need to devise a workable definition to define the term trend. Depending on which book you care to read, most economists and financial authors claim that the market trends between 30 and 40% of the time. The remainder of the time the market is involved in normal backing and filling operations. I define these backing and filling operations as market noise and tend to avoid trading during these periods. Another more workable definition for non-trending markets, at least in the system I trade, is time the market spends wandering between the +100 and -100 lines on the Commodity Channel Index. While this definition may seem a little technical, it is fairly accurate. Hence, I seldom initiate trades when the market price action is in the area between +100 and -100.

Another handy definition can be found using the NYSE tick indicator. I use a similar methodology with the NYSE tick indicator, and consider any market movement between +400 and -400 market noise. Just like that Commodity Channel Index, I see to avoid making any trades during these periods of market noise, or normal backing and filling operation of the market.

There is some misconception about what a trend looks like on a chart. Many new traders expect a trend to be a straight line up for down (depending on whether he you are considering long or short trades). But any trend will go through periods of retracement in the course of a normal trend. Often times, Fibonacci analysis is used to calculate the strength of the retracement, though it is not necessarily imperative. My point here is a simple one; the market will advance for a period of time, and then retrace its advancement for while, sometimes up to 50% or more of the initial advance, then resume trading in the direction of the original trend. The resulting price action line on the chart resembles a serpentine pattern in definite direction. Trends seldom move in an absolute straight line, though euphoric buying and panic selling can create a spike that moves straight up or down. In my opinion, spikes in the market cannot be defined as trends as they are usually the result of some unusual market activity, world catastrophe or political unrest.

So we have come up with some finite definitions to define market noise and trend. A trend will move in one direction in a serpentine pattern, while backing and filling operations usually indicate a consolidating pattern in the market where the price action tends to stay in a narrowly defined channel. We also have noted that trends can mean a variety of things to different traders or investors, and the term “time period” is essential to understand as it relates to trends. Trends can be as long as 25 years and as short as an hour. The term trend is closely related in definition to the style of trading each trader employs.

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More on the Financial Crisis: If you want to Understand what is going on, read this.

By trader7757, 12 July, 2010, 1 Comment

In effect, it’s a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

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The Current Debt Crisis: How Did It Happen

By trader7757, 9 July, 2010, 2 Comments

I usually don’t write articles about current events, but this particular article is about a current event that has its origins nearly 30 years ago. The tremendous debt load that most countries are currently burdened with are not something that has its origins in the last decade. This fact may surprise people, as national debt has only been coming to the forefront since the most recent credit crisis. But a careful analysis, and an honest analysis, will show that this unprecedented borrowing spree has been going on for more than 30 years and we are now only beginning to reap the consequences of a poorly managed economy.

I think it’s important to understand that I have no blame to place on any individual, as most borrowing has been approved by Congress and whatever President was currently in charge. To be frank, there is enough blame to go around and both parties have been equally complacent in failing to halt our runaway debt problem. So there will be no politics in this discussion, just simple facts that are well documented and may help readers understand the cause and current effects of our credit situation.

From the onset, I would not predict we are doomed to failure. We are, and always have been, a resilient country with vast human and natural resources. The United States has also shown a remarkable ability to adapt to a variety of conditions which have on several occasions threatened the bedrock of our democracy. So I think it’s important to understand that there are remedies to our current situation and I believe we will implement the proper laws and regulation to bring our country into a more manageable debt situation.

Many individuals believe that our recent budget deficits are a product of the last two or three administrations, but the fact of the matter is surprising; our major budget deficits began under Pres. Reagan and at the time, it created a massive stir. In England, Margaret Thatcher was in the process of drastically reducing public spending, and in the United States the Congress and Pres. Reagan were amassing massive debt, primarily spending money in the defense sector. Economists at the time were sharply divided in this approach, as the freshwater economic sector favored increased borrowing and spending, and the salt water economic sector felt strongly that an increasing debt load would be detrimental to our country. In the end, Reagan’s budget director, David Stockman, resigned in protest when the Republican Party would not bring deficits under control.

Of course, Congress and a variety of presidential administrations have continued to exacerbate our burgeoning debt load. The problems we are experiencing, are simple; we have too much debt, and lack the resources (at the present time) to service our debt levels. This phenomena is occurring at both the national and state levels. Many states are currently underfunding or borrowing from vested civil service pension funds to cover the shortfalls in our current system. The unfortunate fact is that you can’t make debt go away. On the other hand, many citizens are loathe to sacrifice the government provided services on which they depend. So our debt has continued to grow at an alarming rate.

In the last two years, our country has attempted to remediate the effect of a very deep depression by infusing economy with 8 trillion, or more, depending on which numbers you care to quote and hastened the level increase in our debt.

While there are no specific individuals to pin the blame for this crisis upon, the burgeoning debt load our country has accumulated will be an Achilles’ heel for many years to come. I think it is important to know that our current crisis is not the result of any single action, though Wall Street in recent years did help exacerbate an already tenuous position, but our problems have been accumulating for an extended period of time. Of course, from a political standpoint both parties are happy pointing the fingers at each other for this mess, history will show that both parties showed equal levels of incompetence in dealing with the United States budgetary concerns. The facts show unequivocally that our borrowing has increased exponentially in the last years and shows no sign of abating, despite the rhetoric and politicians and political pundits espouse. The truth is a simple one; this particular budget crisis is the work of Congress and presidents who targeted programs for funding that were beyond their means we had to pay for them.

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Three Core Attributes of a Quality Day Trading System

By trader7757, 1 July, 2010, 1 Comment

There are a staggering number of day trading systems on the market today, and they range from fully automatic systems to exotic systems based upon astrology. The day trading systems which lie between these two extremes are the ones of interest to the average trader. For a novice trader, choosing a system is complex and difficult because it is tenuous to ascertain which system will actually work in which system is nearly hype. Most good systems, though, are comprised of some time-tested core components that differentiate them from the less than effective systems.

Throughout my career as an institutional trader I have learn to day trade several different systems that are effective and profitable. These time-tested systems usually contain three important characteristics which are worth noting. All contain some emphasis on price action or price movement. Nothing is more basic or essential to a system than what the price movement of the traded equity is doing, and the manner in which price is behaving. Price action analysis is among the oldest disciplines in trading systems, and its importance has not lessened over the years. As a matter of fact, there are systems based solely upon price action. Any discussion of price action methodology would require a discussion the size of a small book, as there are many interpretations of the relationship between price movement and the market prediction. Like all things in trading, some price action analysis is quite effective and other analysis is not as effective. It will take some investigation and research for the average trader to determine which price action methodology best suits the trading style he or she intends to employ.

A second characteristic of a good trading system is the utilization some form of indicator or oscillators. In a recent years, indicator and oscillator based systems have gained great popularity. Again, there are trading systems based solely upon oscillator indications. I caution against using systems employing only oscillators, as there are some inherent weaknesses in this methodology. Of utmost importance and evaluating oscillators is the tendency for them to be lagging indicators. Most oscillators receive information from a data feed and apply a specific mathematical formula or analysis to this data. Therefore, by definition, oscillators tend to lag the market and you may find yourself a step behind the action if you rely solely upon oscillator based trade selection. There are a number of oscillators that claim to be leading indicators, but their effectiveness as leading indicators is generally dubious, at best. On the other hand, it is possible to glean a tremendous amount of information from oscillator and indicator analysis and I do not mean to lessen or demean their importance. My point is a simple one, oscillators and indicators are generally lagging indicators and understanding this weakness is essential in employing their use in your trading system.

Finally, I think it is important to have information or a data feed coming directly from whatever underlying security is being traded. For example, I trade primarily the financial index e-mini futures, so I am particularly interested in raw data from the New York Stock Exchange. To accomplish this goal, I generally like to use the NYSE tick. This particular indicator compares advancing and declining issues on the New York Stock Exchange and gets no information or data from the futures exchanges. Using this raw data, I get a bird’s eye view of what is actually occurring on the exchange. I feel this is a distinct advantage in my trading, as the futures traders have not always reacted to the New York Stock Exchange price movement and I am therefore aware of the trends, or lack of trends, that occur in real-time. Oddly enough, when I have introduced this indicator to traders who have relied solely upon oscillators they are often amazed at the added depth of knowledge they acquire when comparing the NYSE tick and their familiar oscillator based indicators. For that reason alone, I believe it is important to employ data that does not come directly from the futures exchanges. Quite simply, data derived directly from the exchange of the underlying security will supply you with information you might not normally be accustomed to using.

As you can see, I like using trading systems that are multifaceted and give me a broad view of market movement. It is my opinion that trading systems that rely upon a single indicator often result in a skewed market viewpoint. Above all, when I day trade I want to develop the fullest understanding of the market movement possible, and I accomplish this by looking at the market from several points of view.

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