Thursday, February 08, 2007

Thursday, February 8th Morning Market Comments

10:44 AM - Well, it was one of those days. Tried a basic idea a couple of times, got initial movement my way, but no follow through. Actually, for the purpose of these morning sessions I think it's good to illustrate the difficult days (such as today) with the easier ones (such as yesterday). How to handle being wrong is every bit as important as managing to be right. What I try to do with position sizing is start with a small initial position, wait to see if it goes for me, and add if conditions are right. If the position goes against me initially, I don't get hurt in a big P/L way. I generally find that, if positions don't go my way pretty quickly, they're much more likely to not go for me at all. The other important piece of risk control is scratching trades when you have a reasonable paper profit that evaporates. In retrospect, the one thing I could have done better is take some profit off the table when we got to the initial target of the AM high in ER2. In a range bound market, that probably makes sense. That "taking what the market gives you" is important when the market doesn't give you much! Summary tonite on the Weblog; have a great rest of the day!

10:37 AM - Small profit and I'm out. Back in a bit.

10:18 AM - The trade that I've been pursuing is based on the fact that ES made a low relative to yesterday, but the other averages have held above their lows despite selling in the TICK and the dominant hitting of bids in ES. I'm looking for the averages to put in a low for the day, which then would lead to tests of the AM high and the previous day's high as targets. We got right to the AM high in ER2, but buying wasn't sustained and we traversed back through the range. Now I've reinitiated the trade, once again nibbling and adding as we hold lows on selling, and I'm trying it all over again. More in a bit to wrap up.

10:10 AM - Well, we'll see how the nibbling works out this time. I'd be buying more ER2 on TICK pullbacks that hold above AM lows. The entire trade is predicated on holding above yesterday's highs as part of longer-term strength. Need to see net buying in ES, however, and a positive shift in TICK to be aggressive on the long side.

9:55 AM - Once again we see a low in ES not confirmed by the other indices thus far. I will be nibbling at ER2 as long as we don't get new lows for the AM.

9:47 AM - When I put on an initial position and add to it, I keep in mind my average purchase price. If I have a profit and then the whole position goes to scratch, I'm out. Part of the discipline. We just couldn't take out those AM highs, so the breakout trade I was looking for didn't come. I will likely try the idea again if selling dries up above the AM lows. Nice example of a decent trade idea that just didn't go.

9:43 AM - Scratched out.

9:33 AM - Initial ER2 target is the AM high, then yesterday's high. Targets for ES are the AM high and pivot and VWAP from yesterday.

9:29 AM - I'm adding to ER2 positions on TICK pullbacks at higher price lows. Bail out if TICK drops take us below those lows. Need to see TICK breakout highs.

9:19 AM - The upside TICK couldn't amount to much; need buyers to come in and sustain. Note ES low not yet confirmed in other averages. Holding small initial ER2; no adding to longs until we see evidence of buyers.

9:04 AM - I'm playing with the idea that we made a low for the AM; long some ER2.

9:00 AM - Note difficulty of sellers getting market below the ES range and difficulty sustaining selling in ER2 and negative TICK.

8:49 AM - Selling TICK bounces in ER2 working fine so far, targeting yesterday low.

8:45 AM - Nice tell with ER2 leading ES down on the TICK breakout to the downside. Volume above average and targeting those lows mentioned earlier.

8:38 AM - Volume is pretty healthy; I'm watching to see how buyers come in as we break the previous day's lows in ES (but not the other indices so far). I need to see NQ and ER2 lead the weakness for me to sell lows in ES.

8:15 AM CT - And another good morning to you! Thanks to the many people who have responded so far to the poll. My email inbox reads 935 (not all are poll responses!), so I'm pretty much buried in electronic communications. If I haven't gotten back to you about your comments, that's why. I greatly appreciate the interest. I think this morning's post is one of the more important ones in a while. It certainly is a key to how I read markets. My next post will offer concrete numbers that you can use during the day to gauge market participation. So now let's talk about this AM. We had some weak reports from retailers just a bit ago and we're seeing selling in Europe and in the preopening equities futures markets as a result. Indeed, we're quite close to yesterday's lows in ES as I write. That puts us back into the thick of the trading range of the past four trading sessions. Our first challenge, then, will be to see if pressure from sellers continues during early trading, which would have us testing the lows of this multi-day range (around 1448 on ES). Pivots for the day are on the Weblog; note that S2 is quite close to the low of the multi-day range in ES. The dollar has weakened somewhat vs. the Euro; not much rate movement so far. I'm not sure there's a major fundamental shift at work to justify a repricing of stocks. So the market will have to show me that a breakout is in the works before I assume that we'll jump outside the recent trading range. Back after the open.

10 comments:

heywally said...

Things certainly seem to be nebulous today with a downside bias as of 8AM PST (ER2 now looks weak) - I put on an NQ trade at 1814.75 earlier when it looked like selling had temporarily dried up, even though I wasn't where I wanted to be on my stochastic. Impatience. I managed to pull a latte out of the trade.

We could be in a range but then again, maybe not - I will now sit back and watch/wait for something extreme or do nothing.

Mike Roznowski said...

What about the Dow and OEX they are making lows right alongside the SPX?

Brett Steenbarger, Ph.D. said...

Hi HeyWally,

I have to agree. Patience is key, especially in markets that aren't giving a lot of directional movement.

Brett

Brett Steenbarger, Ph.D. said...

Hi Mike,

The Dow, OEX, and ES are large cap indices that are highly correlated, so I expect them to move together. I look to sector indices, small caps, etc. for ideas about broad participation or nonconfirmation. Thanx--

Brett

Lord Tedders said...

Brett,

Yes I totally agree that its important not to get hurt badly on a day like today (especially after a nice easy day like yesterday).

You and I ended up taking the same long play at 7:05 ish and I can see you had superior enty(I was late on my entry) as you were able to scratch this trade and I took a small loss. A few seconds hesitation in this business can be very costly.

Brett Steenbarger, Ph.D. said...

Hi Lord Tedders,

Thanks for the note. One thing I need to work on in this low vol market is being more aggressive in taking profits when an initial level is hit or when we stall out before hitting a level. It's all too easy to have those gains reversed!

Brett

yinTrader said...

Hi Brett

Lessons from today's trades, especially on ESH7. Entering late or outside the Primary Sell Zone is best not taken.

Stepping aside and waiting patiently for the market to come to me, would minimize my loss, when the short did not go my way and I exited when I woke up (5.30am Singapore time) on close of market.

Trading in a different time zone geographically can also be a disadvantage.

Nevertheless, patience and waiting for the market to come to us paramount!

heywally said...

re taking profits in this market, what I've ended up with (for daytrading) is taking profits on half the position with a hard target (currently 4 points on the NQ) and then simultaneously, a break even trailing stop gets set on the remaining position, just in case we get a trend going (if the market really takes off, I'll manually make the trailing stop wider). My original stop is 4 NQ points on the entire position so this obviously requires pretty good entries (but what doesn't?)

Brett Steenbarger, Ph.D. said...

Hi Yin,

Very good point about letting market come to where you have your edge. If I think a market is making a bottom at point X and I enter the position too far above X, I'll have quite a loss before I actually know the position is not in my favor. Execution counts for so much! Thanks--

Brett

Brett Steenbarger, Ph.D. said...

Hi HeyWally,

You raise a great point. It may well be advantageous to have a high probability hard target as a first exit. Thanks--

Brett