New Website

For those of you who follow my blog I just wanted to let you know that I switched locations this morning to www.dmtrader.com. I’ve been wanting to get into designing WordPress themes and owning my own hosting/domain provided the easiest way to do that.

Just thought I’d give people a heads up.

P.S. I tried subscribing through Google Reader and it gave me an error. I’m working on getting that corrected but I know a lot of people use Reader so it was worth mentioning.

How I Pick a Line in the Sand

I was asked on Twitter yesterday to explain how I pick my line in the sand/important area(s) for the day. That’s a great question.

I feel like a lot of traders try and answer this question. Just because of how dynamic the answer has to be the answers tend to be slightly incomprehensible. I’ll try and keep this as simple as I can. If you have questions beyond what I cover please submit a comment and I’ll respond the best I can.

When I try and identify the most important area for the day I am simply trying to identify the area where that buyers or sellers need to stay above/below to maintain control of the market. So the real question is “How do I identify the most important area to both buyers and sellers?”

There are two main components to how I try and identify that.

1) How is the market responding to value are levels (Value Area High, Value Area Low and Volume Point of Control)?

2) What needs to happen for the buyers to move the market buyer and what needs to happen for sellers to move the market lower?

When I look at the value area components I try and keep it very simple. Is value moving high or lower? Is VPOC shifting higher or lower? The answer to that question can tell you a lot about who is in control right now.

Identifying what needs to happen to go higher or lower is a bit more tricky. For me personally I like to keep things a little bigger picture when it comes to the levels I trade. I know it doesn’t always look like this on the charts I post but I try and view the market in sections of LVN-HVN-LVN.

Flip the picture on its side and you have a balanced profile...

If you start stacking those on top of each other then you can start to see a market’s volume profile. To get to the next HVN buyers keep to push above a LVN, then buyers need to push through that HVN to get to the next LVN. Likewise, sellers are going to defend each one of those levels and try and push the market the other way. Fairly basic stuff.

The point is that every morning I ask myself, “Where are we now and what o buyers and sellers need to do to get where they are going?” If we aren’t near an important LVN then I will look at the previous day’s profile and value area to determine where I think the best reaction from both buyers and sellers will occur. If a LVN/HVN lines up with an important volume profile level than that brings even more weight to that area. Furthermore, you need to combine that with what happened overnight and what is happening in the morning when you are creating your trading plan. If you have a LVN at yesterday’s VAH and it also happens to be the overnight high then you can definitely say that particular price is very important to both buyers and sellers.

I understand that this might seem simple and not applicable but really there is no easy way to explain it. The problem with explain the process of finding that “one” level is that it is a very dynamic process and everyone views the market in a slightly different way.

It might not make sense but that is my process. I’m thinking in the next couple of weeks I will take one day and write down my thought process for finding that specific day’s important area(s). Sine this is a dynamic concept it might be better to take a day and explain it in “real time”. For now this will have to do.

Again, this is one way (more specifically, my way) of doing this and trading is more about risk management than it is about being right when it comes to an important area in the marketplace. Just keep that in mind. If you want clarification on something feel free to drop me a comment and I’ll respond asap.

Mastering Trading

I’ve been thinking a lot about the concept of mastering something lately. The main reason for this is because I feel like I’m in a place where I am a jack of all trades but a master of none. I’ve done sales. I’m pretty decent at it. Not the best but good enough. I’ve done trading. I’m not the best but I’m decent. I’ve done computer programming. Again, good but not excellent.

I took this week to really try and reflect on the concept of mastering a skill. These are some of the conclusions that I came to:

1) What you should master is probably more important than actually mastering the skill. This is kind of a “what came first the chicken or the egg” statement. If you break it down it is pretty obvious that you are going to want to jump head first into something that you enjoy. It just makes it easier. Unfortunately that seems to be the hardest part about this process. Which leads to…

2) Think past the first level of any skill (and profession that comes from that skill). For instance, I like computer programming. I like designing websites. However, things aren’t always as they appear on the surface. Much of the life of a professional programmer is spent trouble shooting, trying to figure out what your client actually wants or attempting to babysit end users through simple tasks (no ma’am it’s the big red button in the upper right hand corner that has a giant X running through it). Nothing is what you see on the surface level and absolutely nothing is how you think it is.

3) Being a professional is about enjoying the grind that comes with your profession. Every profession has an element of grind to it. Even professional athletes. Listen, I’m the first guy when in a group of people to say “oh come on I’d love to get paid millions of dollars to play baseball!” I then refer myself to point #2. Nothing is ever as it seems to be. Don’t get me wrong, I would love playing baseball all summer, but there would also be times when it just sucked. One often overlooked characteristic of a professional is the ability to simply grind through the monotony.

What do you like about trading and investing? I hope it’s not the fast money or the excitement because at some point that wears off. You have to enjoy the things like looking at charts, not putting on trades and taking losses to be a professional trader. Just like most professions it doesn’t take a PhD to be a good professional trader. But it does require time spent learning the craft and an understanding of some of the things that you will have to grind through on a daily basis.

If you are seasoned then you understand what I am talking about and have (99% of the time) mastered that. If you have been doing this for a decent amount of time then you probably understand what I’m talking about and master this about 50-75% of the time. If you are newer (1.5yrs or less) then you think you understand these things but for some reason refuse to believe me and everyone else who says these same things. You can’t enjoy money and be successful at this business. You have to be successful at this business so you have the ability to enjoy money. For most of us trading is the closest thing that we will ever get to being a professional athlete. Most athletes at the top of their sports enjoy or at the very minimum understand the process that it takes to be successful land make money. We should all treat trading that same way.

3/22 Plan

E-Mini S&P 500 Futures

Key Level(s) For Today

1535, 1544 and 1551.25

Areas to Note

Gaps: 1521, 1542.25, 1549.25

NVPOCs: 1515, 1538, 1550.25, 1542

Economic Releases

None

Notes

  • Value and VPOC shifted lower on the day, continuing the series of gaps and value shifts this will has seen.
  • There are three important areas today: 1535, 1544 and 1551.25. 1544 will be more of a pivot area so I will more than likely use that as a potential target or just simply trade smaller around that area as it is the most likely area to experience chop.
  • If buyers are able to push and hold above 1551.25 then the objectives are 1554.50, 1557.25 and 1565.
  • If sellers are able to push below 1544 then the objectives will be 1535.25, 1531 and 1527. Responsive buyers where very aggressive yesterday below 1544 and specifically just above the 1535.25 area. Because of such a strong response yesterday at that level it makes me more cautious of using that 1535.25 level as a spot where responsive buyers will step in. Still, it is a place where buyers need to step up to put in a higher low and to launch a move to new highs.
  • If buyers don’t step up at 1535.25 then it is likely that they are just waiting for the 1521 gap to be filled. It will be hard for buyers to gain any significant upside momentum unless they let the 1521 gap close and try and push back above 1544. This is setting up for a Head & Shoulders pattern if buyers can’t push back above 1544.

Key support and resistance areas are outlined on the chart below.

3/21 Plan

E-Mini S&P 500 Futures

Key Level(s) For Today

1549.75-1550.25 and 1554.50

Areas to Note

Gaps: 1521, 1542.25

NVPOCs: 1515, 1538, 1550.25

Economic Releases

Jobless Claims 7:30am CT
PMI Manufacturing Index Flash 7:58am CT
House Price Index at 8:00am
Existing Home Sales at 9:00am CT
Philadelphia Fed at 9:00am CT

Notes

  • Value and VPOC moved back higher yesterday continuing the series of gaps that this week has brought.
  • 1549.75-1550.25 and 1554.50 are the two important areas for today.
  • If buyers are able to push and hold above 1554.50 then the objectives are 1557.25 and 1565.
  • If sellers are able to push below yesterday’s VPOC and VAL then the objectives will be 1547.50 and 1544. Responsive buyers will likely step in at 1544. If sellers are still able to push below 1544 then we could see strong downside momentum.
  • Below 1544 I will be watching 1541.50 and 1535.25. The 1521-1527.25 gap zone is still looming large. It is likely that at this point both buyers and sellers would rather see that gap be filled before initiating any substantial new activity.

Key support and resistance areas are outlined on the chart below.

3/20 Plan

E-Mini S&P 500 Futures

Key Level(s) For Today

1532 and 1544

Areas to Note

Gaps: 1521, 1534.50, 1553.50

NVPOCs: 1515, 1538, 1555

Economic Releases

FOMC Meeting Announcement and FOMC Forecasts at 1:00pm CT
Ben Bernanke speaking at 1:30pm CT

Notes

  • Value and VPOC moved lower in yesterday’s session. Important to note is that the value area high from yesterday ended right in the key 1544 area. Building value back above that is key for buyers and keeping value below that is key for sellers.
  • 1532 and 1544 are the key levels for today.
  • If buyers are able to push and hold above 1544, that will bring back into play 1547.50 and 1551.25 (yesterday’s RTH high was 1551). Above that I have 1554.50 and 1565.
  • If sellers are able to keep the market trading below 1544 then a retest of the 1535.25 are and below is the objective.
  • Below yesterday’s lows and it is likely that the market will trade the 1521-1527.25 gap zone. In which case I will be watching 1521-1523.25 for responsive buyers.

Key support and resistance areas are outlined on the chart below.

3/19 Plan

E-Mini S&P 500 Futures

Key Level(s) For Today

1544 and 1551.25

Areas to Note

Gaps: 1521, 1534.50, 1553.50

NVPOCs: 1515, 1535.25, 1545.75, 1555

Economic Releases

Housing Starts at 7:30am CT
Redbook at 7:55am CT

Notes

  • Value and VPOC moved lower during yesterday’s action. It is noteworthy though that value and VPOC both ended above the key 1544 HVN.
  • 1544 and 1551.25 will be the key prices during today’s action.
  • If buyers are above to hold above 1544 and push above 1551.25 then the upside objectives are the 1553.50-1555 gap-NVPOC area and 1565.
  • If sellers are able to push below 1544 then the key area to the downside is first going to be the 1537.75-1539.50 opening range from yesterday. After that the next objective is 1534.50-1535.25.
  • If sellers can push below 1535.25 then the 1521-1527.25 will really begin pulling on the market. After yesterday’s action I would expect sellers to be slightly more aggressive than in the past.
  • If sellers do take the market through the gap zone I would expect responsive buyers to be waiting for 1521-1523.25

Key support and resistance areas are outlined on the chart below.