The Fractal Futures Trader » scalper

What is the Market Going to do Today?

trader7757 — Fri, 03 Dec 2010 06:24:33 +0000

I am invariably asked this question as I begin each day in the trading room. Will the market go up? Will the market go down? There is a gap up…does that mean the market is going to fill the gap immediately or maybe wait until later in the day? I almost always disappoint the individual asking the question by answering, “I really don’t know.”

Even worse, I really do not know.

Predicting which direction the market will move can be one of the most embarrassing propositions for any trader to undertake. Of course, you have at least a 50% chance of being right, which is some consolation. Generally speaking, though, I don’t have the slightest idea which way the market will move, and many find this disturbing. As a trader, many think you ought to have some general idea as to which direction will move. But I am a scalper, and I don’t concern myself with predicting which way the market will move.

I am looking to catch areas of momentum and ride that momentum until it subsides. Instead of knowing which way the market is going to move, I am simply hitchhiking a ride as the market moves in one direction or the other. I am quite comfortable reacting to the market as oppose to predicting what the market might do.

Scalpers use a number of techniques to identify areas of potential momentum. First and foremost, most useful information is contained in the actual price action in the market. Oddly enough, price movement is often ignored in favor of a variety of oscillators, rate of change indicators and a number of exotic charting systems. I am not interested in many of the popular predictive systems like Elliot Wave analysis, Gann Lines, or systems of a similar ilk, but I want to make sure I point out that my opinion does not imply these systems do not work. My point is a simple one, these systems do not work for me and I do not use them.

No, I am far more interesting in support and resistance, trend lines and momentum. I have an important maxim: Trade primarily with the trend. I allow myself one countertrend trade per day, and that is usually one too many; but there are many very enticing set ups that occur countertrend and learning to lay off these trades is a challenging job. Most traders find that countertrend trading is an unprofitable method in which to trade. Further, the empirical scientific evidence bears out one indisputable fact; trading against the trend is far less profitable than trading with the trend. For a scalper, trading with the trend the majority of the time is imperative.

I also employ, in varying degrees, forms of Fibonacci analysis. I have never been convinced that the underlying principle of Fibonacci is valid; that is, the market moves in natural cycles that can be predicted using the Fibonacci sequence. One thing I know for sure is that enough people trade using Fibonacci analysis that the system works. Whether Fibonacci works because so many people use it or it is intrinsically valid is of little consequence to me; I don’t care why it works, I only care that it does work and therefore employ some tenets of the system in my trading.

In summary, I am a scalper and I am interested in momentum in the direction of the trend. I don’t use predictive trading systems; I rely upon price action, support and resistance, trend lines, and some limited use of Fibonacci analysis. I keep it simple and try not to overload my methodology with extraneous charts and unnecessary information. Scalping is not for everyone, but it is a very effective method in which to trade.

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How to Scalp the ES Emini: A Day Traders Delight

trader7757 — Tue, 12 Jan 2010 18:36:15 +0000

There are a variety of day trading styles that traders employ, some with great success, others with less than satisfactory results. My style of day trading, scalping, is a direct reflection of my personality, experience and emotional disposition. ES Emini day traders who scalp typically stay in trades for five minutes or less, or longer, if need be.

My views on the way the market functions precludes me from making long term commitments to a given market direction. Market prognostication is an inexact science, at best, and most economists and day traders have a miserable track record of predicting the future direction of market movement. So, I don’t even try. I suspect I would be as poor at predicting futures market direction as the experts.

As a adherent to portions of chaos theory, I believe there is a level of randomness to the market, which makes it less than predictable in the long term. I do believe that certain means can be employed, and probabilities analyzed, that will allow a day trader to get an idea of what the market may do in the next ten minutes, though. Chaos theory is about small patterns, called fractals, that exist in a far larger random pattern. I take advantage of those smaller patterns and try to pull two or three points (on both the long or short side of a position), and then exit with my small prize. Of course, if I find myself in a continuing trend, I may push my profit limits higher to take advantage of the trend. By and large, though, I am looking for two or three points.

A casual glance at any intraday chart will show an undulating wave pattern that is the basis for scalping. I try to identify the starting point of a wave and exit the trade when the little spurt of momentum stops. Of course, there are days when the market trends in one direction, not often, and on those days I may take a position and hold until my comfort level erodes and I am ready to take a profit.

When you are in a winning day trade, you never lose money by exiting the trade. Sure, maybe the trade angled upwards another two points and you did not participate in that price action, but I am still content with my three points.

Never let a winning trade become a losing trade. Take that to the bank because it is a common mistake by a legion of traders.

On the ES Emini contact I set my stops fairly tight, usually a 12 tick bracket and never adjust my stop lower to accommodate a lousy trade. If I am wrong, I am wrong. My goal is to find another trade that is profitable.

I don’t hold trades overnight, and I don’t set up trades and walk away. The scalping style requires constant attention to the day trade at hand, and this requirement makes it an unpopular choice for traders who don’t care to spend a lot of time at the computer. You will be spending time watching charts looking for trades, and once you are in a trade it is important to monitor the trade.

In baseball terms, scalpers are singles hitters. Nothing more. We may hit an occasional home run, but the is the exception, not the rule. The goal of a scalper is to extra small chunks 5-8 times a day from the market.

Numbers, Manipulation and the Commerce Department

trader7757 — Tue, 22 Dec 2009 15:44:11 +0000

Some days it is just plain hard not to laugh at the ridiculous manipulation of numbers the Commerce Department spews forth. So you can imagine my astonishment this morning when GDP numbers were revised downward from the 2.8% growth rate reported last month, which had been revised downward from the original report of 3.5%. We have finally settled on a mundane 2.2% annual GDP, since this is the final revision. On a positive note, the current revision is still the highest GDP since the third quarter of 2007.

The talking point on government economic reports is always consistent, as we typically trumpet exceptional numbers on initial economic reports then quietly revise downward in following months. The Commerce Department would say the numbers are revised as more information is gathered and a clearer picture of the economy emerges, and this is indeed a cogent argument. The job of estimated the US GDP is a mammoth undertaking. But that is not the problem, it has been a long time since I have seen numbers revised upward as oppose to downward. Simple probability would suggest that they would make revisions both to the upside and downside as more information becomes available.

I suppose it isn’t politically correct to question the Commerce Departments veracity, but initial numbers released by the Department have to be treated with a grain of salt, as few people put much confidence in the bright picture often portrayed by the numbers. This practice is nothing new and did not start under the Obama Administration, it’s been going on for years, and has reduced the Commerce Departments credibility significantly. The market has simply learned to shrug off the glowing reports issued and continue trading with what the market offers to be true through independent pricing models and reports issued by individual corporations.

What ever happened to the maxim to “err on the conservative side?” Even MSNBC, the bastion of spinning horrible news into “not quite as bad as you think” news has taken to shrugging off statistical surprises and recommends, from time to time, to wait for the revisions to give us a clearer picture. Oddly enough, it is my opinion that the general public has a pretty good idea what is going on in the economy.

I was at Wal-Mart yesterday and happen to know the manager pretty well, and questioned him how Christmas season sales were going and he smiled and rattled off a stream of positive numbers over last year. I didn’t need to ask, really, the throngs of people in Wal-Mart indicate a change in spending. On the other hand, I questioned the local Macy’s manager about Christmas sales and he stared at his shoes and mumbled incoherent jabber about a late surge he expected to bring the numbers up to par from last year. The logic is simple: Wal-Mart is cheaper than Macy’s and people are spending less this year. I do’t need the Commerce Department to tell me that fact, either. I can see and feel it.

As always, I am thankful I am scalper and don’t have to depend upon government prognostication to support myself.

ES Emini Day Trading: Eight Habits of Successful Trading Scalpers

trader7757 — Sat, 19 Dec 2009 18:57:12 +0000

ES Emini Day Trading: Eight Habits of Successful Trading Scalpers

Not everyone day trades in the same manner, but successful scalpers tend to share some similar characteristics. Over the years, I have noticed that:

1. A good scalper is familiar with the contract he is trading. He has extensive experience trading the contract, and most scalpers will tell you that every futures contract has it’s own idiosyncracies that make it unique. Trading a contract you are unfamiliar with can be fun, if you are trading low contract numbers and trying to learn, but it is a tough place to try and make money.

2. A good scalper is in complete control of his trading account. He does not overtrade or trade more contracts than his pre-set risk tolerance. There is often a tendency among less talented scalpers to start trading larger contract amounts if they find themselves having a bad day. A good scalper does not try to over compensate and stays within the parameters he lives by in his trading life. Doubling down is not a good way to make up for successive losing trades.

3. A good scalper is self-disciplined and stays within himself. He has a system and his goal is to execute his system flawlessly. He does not take on a risky trade that is not within the parameters of his entries, and he does not bail out of a trade that is still within his parameters if he starts feeling bad about the trade. The ability to stay under control during difficult trading times is the hallmark of a great scalper.

4. A good scalper has a solid understanding of his own ability. Some markets are very difficult to trade, especially when the price action is whipshawing back and forth and there is no clear trend. There are risky techniques to trade these markets, but they involve considerable risk which is probably outside the risk parameters of the scalpers. Trading is not like Texas Hold ‘Em, you never go all in, and you never bluff.

5. A good scalper realizes that the market is always right and he is always wrong. This is a tough one to swallow, but when I make a losing trade, even though the set up was just exactly what I was looking for and the price started moving in the expected direction, then turns south and I get stop out, I am wrong. The market is a constant, so it is always right. It may not always be logical, but it is the ultimate decider of trading truth.

6. A good scalper keeps track of his trading. Most good scalpers keep a trading diary and perhaps even the daily chart for every day they trade. I frequently go back six months and look at the things I did well and some of the things I did poorly. It is part of the method of learning to trade to keep track of where you have been and revisit that place from time to time. You don’t live in the past or dwell on your mistakes, you learn from your mistakes.

7. A good scalper controls all the outside variables in his trading environment. Many traders listen to music while they trade, some prefer silence, but very few listen to the trendy market television shows that blare out all sorts of speculation and rumor. Scalpers trade the chart in front of them, and that chart contains all the information they need. There is no need for some television talking head to skew your thinking, and it can happen. The trading atmosphere should be away from the family, tv, radio anything that can distract, and the family should understand that while dad is trading he should be left to trade.

8. And finally, a good trader has a healthy perspective on life. He understands that as a scalper he does not have to worry about the broader trends effecting the economy or the world, at least from a trading standpoint. He knows that all the information he needs is right there in the price action and indicators he has come to rely upon, and he trust his system to serve him well. Trading isn’t everything in his life, but it is his income. But trading gives him the time to spend with his children and family, his leisure time is enhanced, and he has a chance to make the world a better place instead of working long hours in the corporate life.

I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit.

I endorse a state of the art trading program for beginners at Trading Concepts, Inc It’s an awesome product that will have you well on your way to success. Plus, it has a money back guarantee…you have nothing to lose and thousands to gain.

ES Emini Day Trading: Should You Pay to Learn to Trade

trader7757 — Thu, 26 Nov 2009 15:40:42 +0000

This is a very difficult question for me to answer, and I receive quite a bit of email asking which programs are the best to learn the emini. I suppose my answer is a simple one, and that is you should pay to fill in the gaps you don’t know.

I learned to trade in the institutional setting, so I didn’t have to pay a thing except for long hours and low pay, especially during my early years. Of course, as I improved the pay got better and I made a great living. On the other hand, most novice internet traders don’t have the option of learning in an institutional setting, so they must learn from a number of sources. Yes, it is going to cost some money, but it doesn’t have to be a whole lot of cash.

First and foremost, through out the notion that common sense is an accurate predictor of what the market may or may not do…the market has nothing to do with common sense. On this blog I have given you some rudimentary oscillator training and discussed the importance of fractals in your trading scheme. In a sense, that should get you started, but it won’t complete your trading education. I have also, in a past post, recommended some great books to read. They are good, but they are only a stepping stone on your way to trading success. No, you need specific knowledge and experience, and those are tough commodities to come by.

1. Chart courtesy of AMP Trading, get a free demo account and paper trade. Ask for Chad at 800-560-1640. Large futures brokerage houses have a wealth of information they can share with you to get you started. Plus, it’s free.

2. Get a good charting program, like Ninja Trader, then add Decision Bar to the mix, this program will keep you out of a plethora of bone headed trades and it’s worth its weight in gold. Ninja Trader will cost you about $50 a month and Decision Bar is $99 a month.

3. Try mastering a single trade set-up like The Stock Index Trade, this trade will present itself every day or so and is a great winner. The cost for the program is $67 and you will easily make your money back in the first week.

Once you get on your feet trading, you might consider joining a trading room. There are several great ones out there, and they can be very helpful.

Some to consider are:

1. John Carter and Hubert Centers Trading Room, these guys are funny and very, very talented.

2. The Emini Addict has a great trading room, and I highly recommend it.

3. The Emini Trading School has one of the best trading rooms available, and offers a free trial during certain times of the year.

All of these trading rooms are going to cost $300-500 a month, and you are wanted to be consistently winning trades before you join. They will definitely help your bottom line, but make sure you can afford the investment before you jump in.

Finally, there are actual trading courses available for you to participate in. These courses can run anywhere from m$2000-10000 bucks.

1. The only course that I can wholly recommend is Trading Concepts. It is a sound course and is around $2000. Bottom line, it’s a great program and you will become a competent trader.

2. I give my highest rating to INO, which offers the most comprehensive trading education in the business. There are hundreds of videos from the likes of John Murphy, Linda Rashcke and a host of others. It is, quite simply, the best in the business.

Please note: I do not recieve any financial incentive to recommend these products and am in no way affiliated with them, with the exception of INO, with who I am an affiliate.

The point here is a simple one, you are going to have to rely on some outside expertise to become a great trader. Invest your education dollars wisely, the higher priced programs are not necessarily the best ones. Check out the programs I have outlined and see if you don’t find something of interest. All the best trading.

ES Emini Day Trading: Detailed ES Trading Chart

trader7757 — Tue, 24 Nov 2009 01:19:39 +0000

Chart courtesy of AMP Trading, get a free demo account and paper trade.

detailed ES Emini day trading chart ESZ9 for Nov 23, 2009

Well, the market started out with a great up move and then sort of unwound for the rest of the day. Notice that I put the Fibonacci replacements in the chart and the market found support at the 61.8% level and then hovered above and below that level for quite some time.

It was not an exciting day to trade, though I had to fight impulses as the market faded of the highs to stay and in the trade and let it ride. Not an easy thing for a devout scalper, but I managed to stick by my guns. The volume, as it has been for quite a while, was not overly impressive which, in my mind, doesn’t point to a terribly robust market. We shall see.

YM Emini Day Trading: Detailed Trading Chart for Tues

trader7757 — Wed, 18 Nov 2009 04:22:57 +0000

Chart courtesy of AMP Trading, get a free demo account and paper trade.

YM Day trading chart with trades for the day.

Wow, I will sleep well tonight. Though the trading on the YM emini day trading was choppy today, I managed to eek out with a small gain. You can see that on three occasions today I found myself on the wrong side of the trade. I was moving my stops up to one point. If I was on the wrong side of the futures trade, I wanted to get out fast and look for something a little better. Just the same, my style of trading was not suited to the market today, and my stubborn nature prevented me from just stopping when I saw the tough conditions for day trading.

I considered moving the CCI up to a 16 period setting, but I don’t think that would have helped much. In non trending markets, it is tough to follow with my “trending oriented” trading style. There really was not discernible trend from a scalping viewpoint. Whipshaws were the name of the game.

ES Emini Day Trading: A Detailed Trading Chart.

trader7757 — Fri, 13 Nov 2009 22:40:05 +0000

Chart courtesy of AMP Trading, get a free demo account and paper trade.

ESZ9 November 13, 2009, Friday the 13th.

Day Trading on this date, including the actual trades I took

I got an email today that asked why I don’t show the actual chart I traded today, as oppose to this chart which is a markup of todays day trading. I trade directly off the chart so my account numbers and account balances are right in the corner of the chart. I like you guys, but who knows what someone could do with my account numbers. Hope that helps.

After a nice move to the upside I became convinced that market was going to drop, which was a mistake you should note: I broke my own rules in taking the 2 trades to the short side since the price was significantly above the 89 Period SMA, and I was trading against the trend. I flopped on those 2 short trades, too. I am a stubborn one, and my short trade finally came. Such is the life of a scalper, we can be delusional and still be profitable. I was just sure the market was going down, and we all know there is no way to know what the market is going to do….

I finally got my short trade, followed by a quick, half-hearted long then called it a day. I was profitable in my delusional thinking, but the thinking is the path to zero balances in my account. Oh well….