Blog for Trading Success

Yesterday we laid the theoretical foundations for the analysis of May 14’s price action. Today we’ll start on the recap of my trade journal.

I provided the context in “ES 05-14-2008 Video (http://tradingsuccess.com/blog/es-05-14-2008-346.html). So, let’s start the blog with the first snapshot I took - the one I took during the ‘B’ period (Figure 1). At that stage, I observed:

• The probability of a trend day up because of the ‘open-gap’ pattern (http://tradingsuccess.com/blog/sp-intraday-2-169.html). Instead of making any attempt to close the ‘open-gap’, the market went straight up from the open.
• The range of the ‘A’ period is only 8 points - ATR is 22 + 10, -5 standard deviations. This small range for the ‘A’ period also suggested a trend day because of the context and because the open and subsequent price activity was above the previous day’s value area.
• Market Delta identified 1409 as the probable low of the day - note the -151 Delta volume, light red.

FIGURE 1 ‘B’ Period

Figure 2 shows the Delta Volume to 11:00 am

FIGURE 2 Delta Volume

No trade yet.

Figure 3 shows the completion of the Initial Balance.

FIGURE 3 Initial Balance

At the end of “C”, I decided that:

• The market was forming a Double Distribution Trend Day.
• I wanted to be a buyer from 1414.75 to 1412.5
• If I was wrong the market would rotate past 1412.5 and re-print the opening price. I expected that at the worst 1410.5 would hold (beginning of point of inflection).
• Stops were placed at 1378.75 with the intention of raising them to just under the lows of the day once the market had a Range Extension establishing the neckline of the double distribution.
• Target for the move 1467.75. The risk reward was marginal. I decided to take the trade because if correct, the stops would be brought up to 1407.75 relatively quickly; most importantly, if I was wrong, I felt I’d have time to exit with little loss.

I entered the market in the 1414 to 1412.75 range.

Figure 4 shows the Delta at 11:45 am. The high volume at the top of the range suggested continuation and that the trend day was alive and well.

FIGURE 4 11:45

Figure 5 shows “I” period breakout. When the market rotated back into the day’s range, it raised an amber flag to the Trend Day Scenario and raised the possibility of a Failed Trend day (which meant the possibility of a Bearish Neutral Day if we closed in the lower quadrant of the range). As readers know, I hold the “J” (2:30 am EST) and “K” (3:00 am EST), to be the critical time periods for the ES. May 14 proved to be no exception.

FIGURE 5 ‘I’ Period

In ‘K’, the market attempted to push up and failed (note the large volume at 1420.5). When the market started to rotate back down, I exited all longs at prices ranging from 1417.50 to 1416.00

FIGURE 6 Delta Volume

Figure 7 shows a split of the Profile of May 14. Note that if I had been trading poorly, I’d have been stopped out at 1407.75 and suffered a small loss rather than making a small profit. I know of no other tool except Market Profile that gives me the sort of analytical power that enables early exit.

FIGURE 7 Market Profile EOD

So a great day! I was wrong about the market’s structure and direction and managed to make money. Boy, I’d love to do that every day of the week!

I believe my bottom line is showing improved results because I adopted the method suggested in ‘The Psychology of Intelligence Analysis’. By continually adopting a mindset that my view of the market is unproven; and then seeking to ’see’ what has to happen to prove it or disprove it, I am able to exit with reduced or no damage. Now, my old processes - ‘what has to happen for me to stay in? What has to happen for me to exit?’ - are similar with one critical difference: by using the word ‘UNPROVEN’ for my entry scenario, I find I am less likely to get myopic.

Speaking of ‘The Psychology of Intelligence Analysis’…… I draw your attention to the Announcement.

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