Thursday, April 25, 2013


ES opened the day just below today's White Zone of 1578.50-1580.50.   My trade rules call for a short on the first move into a zone.  The zone itself is a high odds location to place a trade.  The highest odds location is the back of the zone.  If I short the front of a zone, which I often do,  I assume that the ES may travel to the back of the zone before reversing.  Where one places a trade must be based on ones risk profile.  (1) Regardless of where I placed the trade,  I was offered excellent profitable scales.  From the back of the zone  you had a potential of 4 points and from the front of the zone you had a potential 2 point trade.  As I have tweeted several times; my trade rules call for scales starting at 5 ticks, 8 ticks, 12 ticks and 16 ticks and then a trailer.  As I have tweeted many times,  If one were to trade only 1 contract,  I would target 2 points for each trade.

(2) Es then traded back into the zone for the second time in the morning.  The second trip into the zone is a lower odds trade even though the zone is resistance until it is broken, at which time it becomes support.  My rules define a zone as broken when ES closes out of the zone on a 5 minute bar.  In addition to the second touch of the zone we had several clues that shorting was not a high odds affair.  First,  traders were unable to push down to gap close, 2  we did not have a tick reading great than -200 on the first rotation back down.  Once the trade broke above the 1580.50 level, control shifted to the buyers.  For me this means several things.  First,  if I am short I need to cover quickly. Secondly, I need to get long at the first test into the zone if I get an opportunity   I do not chase.  I execute at the zone or I let the trade go. Once the zone was broken we had a quick retest of the top of the zone & then rotated up to the 1583.50.  If one had not scaled by the time we got to the next zone the front of the zone provides a logical place to either scale or exit the trade.  Since buyers are in control my rules for this strategy call for passing on taking the short.  As you can see, taking a short here or anywhere in the zone would prove very challenging. ES then chopped in a tight range into NY lunch.  I noted on twitter that the rotations down were very small and that the tick had still barley been negative.  These are signs that shorts will be difficult and favor longs.

(3) ES proceeded to break the top of the 1583.50 to 1585.50 triggering a buy signal per my rules on first trip back into the zone.  The test down did not get to the zone and I was unable to get long.  Even with that being the case,  I was not short and not having a losing trade is as valuable to me as having a winning trade.
I mentioned on twitter that all indicators pointed to buyers wanting to take ES to the 1588 to 1590.  This zone was market as initial resistance.  This is often where I will begin to look for shorts.  ES traded to 1588.25 and marked the high of the day. (4)  The move into the zone was also market by tick divergance giving further indication that initial resistance would hold.  Again, this strategy I am featuring calls not taking short as long as buyers are in control.

The market then proceeded to rollover and trade back down to the White Zone.  This highlights several things in my trading approach.  ANYTHING can happen. Managing risk is everything.  Oppertunities are constantly offered by the market.  I cant miss a trade, I simply learn something new and move on.  The afternoon trade is harder than the morning trade.  My goal in this strategy is to find 2 to 3  trades a day.  I have already accomplished this.  My goal is to grow my equity in a consistent manner.  Most small traders try to capture every trade.  Its just hard to make multiple trades in a row and get it all right.

(5) ES rotated down to 1585.50-83.50 zone.  This is the first rotation down from a zone above since buyers took control and we have had tick divergence the zone above. ES could not even muster a 5 tick rotation up from the top of the zone after sitting there for 20 min.  Another clue that buyers hands had weekend.  We then rotated down to the bottom of the zone and broke below.  At this point,  we now have the biggest rotation down since buyers have taken control.  Another big clue that taking longs would be challenging.

(6) As we trade back down to the WHITE ZONE  for the second time of the day, my strategy called for passing on the long.  Again, I am only seeking the highest odds trades in this strategy. As is clear to see the zone did hold and had 2 nice rotations up from the back of the zone.  Trading here required a more advanced and higher risk strategy that I teach my clients to trade.  Lots of ways to take advantage of the market.

Remember,  your job as a trader is not to catch all the trades or even trade all day.  The only thing that matters is day to day consistency and growing your bottom line.  Most traders fail miserably here.  Most retail traders lose.  Make sure you have an edge and a trade plan you can follow.  Wiping out an account is not necessary.  Hope everyone had a great day.

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