Inside Today’s Interesting but Frustrating Trading

Jan 5, 2009: 9:13 PM CST

What a battle we have going on between relentless bulls and emboldened bears – the struggle of which was evident in the push-pull ‘go nowhere’ intraday trading action seen on the broader US Equity Indexes and ETFs.  Let’s look as usual under the hood at the 5-min DIA action to see the footprints of this battle and note key trade set-ups – most of which were ineffective – for the day.

DIA 5-min chart:

Let me preface by saying I had a crummy trading day as it seemed none of my basket of set-ups or price structure plays (low risk, high probability) seemed to work at all.  I’ll describe the logical thinking and why it failed today.  Remember, you can’t win ’em all.

The morning opened with an overnight downside gap, which the first instinct is to “fade” the gap.  Luckily, I had bearish expectations going into today so the gap wasn’t a surprise, but the gap also didn’t fill as expected, which resulted in perhaps a quick stop-loss taken for those trying to fill the gap.

To make matters more frustrating, the gap filled.  Today will go down officially as a “filled gap” day (which reminds me – I need to do the statistics for December and for 2008).

So really the only trade set-up that ‘worked’ (that I use in my basket of trades) was the two long-upper shadowed doji/shooting stars that formed at the gap-fill zone and resistance created by yesterday’s closing price.  Generally, I target the day’s swing low for a price goal, which would have been $89.10, combined with my bearishness on the day, yet the target was not achieved.  You could have taken a partial profit on the trade… though it also ultimately reached its goal… just not in a timely manner.

If you look very closely just before noon, you see a gravestone doji at the 20 EMA resistance which also formed a classic Bear Flag… which also fell just shy of its target… though it achieved it later (the theme of the day).

Price then found support about $89.50, formed a small double-bottom on a positive momentum divergence, and put in a bullish hammer reversal candle which provided the second ‘working’ trade of the day.  Price exceeded its target and found resistance once again at yesterday’s close.

We formed a bearish engulfing candle which preceded the large swing down through EMA support (notice how the EMAs never seemed to contain price as support or resistance – price tends not to respect EMAs at all in a flat, range-bound environment such as today… oscillators tend to work best here).

Price then plunged down to new lows yet found support at the rising 200 period SMA, forming a doji reversal candle and two other long-legged lower shadows at support.  Price then rallied up to find resistance at the 50 EMA, formed a shooting star reversal candle… yet immediately invalidated that signal to close on an upswing.

I guess the theme of the day – as I hinted earlier – was that price formed classic trade set-ups yet violated them… then achieved the original target.  For me at least, it was a frustrating day, but again, these patterns tend to work more times than they don’t, and when they don’t work, you lose less than you win when they do ‘work,’ thus creating the foundation of “Edge” in a consistent trading system.

Let’s pull the perspective back quickly to the 30-minute chart to see perhaps why price found ‘magical’ support at the $89.40 level.

DIA 30-min chart:

Without going into too much detail, notice how price hugged the rising 20 period EMA all day on the 30-minute chart until price broke it just before the close… only to rally back above it, whipsawing the bears and knocking out long stop-losses.

What do you expect – the last 3 trading days were almost perfect trend days.  Due to the price alternation principle, a bit of consolidation was expected and it came on cue.

Continue studying the intraday charts for additional clues to price behavior so that you’ll be a better trader when these patterns occur in real time.

Corey Rosenbloom
Afraid to Trade.com

18 Comments

18 Responses to “Inside Today’s Interesting but Frustrating Trading”

  1. chris Says:

    Corey,

    I agree .. Glad you liked Breakpointtrades.com. Do you have an email address you could provide so I could get Matt/Steve in contact with you etc.

    Thanks
    Chris

  2. Dominick Says:

    Very enlightening as alwarys Corey. This one is going into my “range day file”. Thanks.

  3. toad37 Says:

    Corey, are you ever comfortable being more specific with your trades? It would be interesting to hear the what, how, when, size, price, stop etc.

    Great post as always!!!

  4. Corey Rosenbloom Says:

    Dominick,

    Good point. I love to show examples of ideal trend days, but perhaps more importantly, I should also document days like this where it probably wasn’t a good idea to trade. or if so, to look for range-bound strategies… but my trades perform best in swinging or trending days. I don’t like it when price whipsaws about the key EMAs.

  5. Corey Rosenbloom Says:

    Toad,

    Nah, my goal with the blog is that of education and idea sharing, not to praise or complain about my private performance. There may be times I highlight specifics but as I rule I don’t discuss my trades publicly. In the past, I found I seek praise and attention for the good ones and try either to hide or seek sympathy for the bad ones. I even think this post took a more complaining tone than I anticipated when I proofread it. I try to stay objective so as to be most beneficial to the most people.

  6. Anonymous Says:

    Hi Corey, as they say, share the pain. As mentioned in my previous post.. i thought this puppy was losing steam. so it gaps down this am and I am at break even, then i got too comfy looking for the ABC retracement, We’ll as you mentioned C came, but late in the day only to bouce back. Long story short, I fought this thing and shorted it two more times before i was able to break even. By then i had over-leveraged and was at a point of blowing up my day trading status.

  7. Anonymous Says:

    … continue for the first paragraph. I realize i need some some of guidance about accepting a losing trade. I for what reason or another is afraid to cut my loses, and then i just let it ride till it balloon in my face. I’ve done this many times in the past and have lost a lot of $$. You’re a great technician, what advice would you give to a person who love the technicals and can execute, but fails with risk management and fear of cutting loses… BTW it’s a humbling feeling to know that even the people whom we seeking knowledge from has bad days too… Keep up the great work..

  8. Corey Rosenbloom Says:

    Anon,

    Like Emril Lagasse is famous for saying, “Hey, we really cook around here.” I do try to keep my posts objective and not overly personal but sometimes emotion shines through. I guess it’s a good thing.

    My bias was pretty strongly to the downside so I was successful at taking I think 2 short trades but unsuccessful at about 4 or 5 of them. I wound up down for the day.

    I’m lucky because I’m the opposite of most traders, in that it’s hard for me to enter a position and easy to exit. I often place stops way too close and exit earlier than I should. I’ve learned to re-enter if stopped out early, but I’ve never really had a problem exiting a losing trade since that one big whopper got me a few years ago which drove the ‘fear’ into me so ultimately it was a good thing.

    I’m actually far too risk controlled but it’s what’s helped me thrive in this current environment.

    Feel free to email me to chat more.

    In short, I’d say focus on the technicals, ensure that your trade set-ups have edge, place a stop right when you enter, have a distinct, logical small target, place a stop where price should NOT go… then place it a few pennies beyond that… and internalize the handful of patterns you trade so that when you see them pop up, you execute without hesitation. And realize that not every trade will win but those that do will make up for those that don’t.

  9. NotAfraidofTrend Says:

    Corey, I really enjoy and appreciate your blogs. What you write reinforces my own personal experiences.

    The market spends most of the time as range-bound and those times are great for repetitive scalping using the oscillators. This is indeed the bread and butter of many day-traders.

    I used to trade range-bound market but I used to get caught against the trend and found it hard to switch strategies in real-time, mainly because I have a one-track mind!

    Now, by focusing on trends only, and by staying out during consolidations, my trading gives me less stress and I also have more free time.

    I get interested in the market only for Elliott Waves 3, 5 and C. By leaving out waves A and 1, i.e. not trying to capture reversals, I avoid guessing of bottoms and tops. Also, I find waves 2 and B to be too flickering or “wavy”.

    However, everyone should trade his own way, and not like anyone else, because that’s the only way we CAN trade.

    Please keep up your good social work! It must be benefiting a lot of traders.

  10. toad37 Says:

    I actually enjoyed this post because of the personal tone. Perhaps I am differnt than other readers, but maybe not….I think that is why Slope of Hope is so popular because Tim lets it all hang out. This isn’t meant for advice, but MORE of you, trading warts and all, may not be such a bad thing. 🙂

  11. toad37 Says:

    … that being said, I really appreciate the focus on education Corey! I’m slowly gettting over the “fear.” 🙂

  12. Anonymous Says:

    Thanks for the word of advice Corey, I’d love to chat more with you about the psychology of trading. I’ve been to the dark side and back too many times this year. I want to start this new year with resolve and disciplain. My trades these last 2 months had yield good results.. then again i was only allowed 3 round trips a week and only on 2x margin. This was my first week back in day trading.. so i realized that some constraint actually helped my trading. I hope others who are reading and are learing the craft will remember that it’s about trade management and risk management. Often we look at the reward and risk becomes secondary. Happy New Years.

  13. dacian Says:

    Are you an expert or what? 🙂

    Keep the good work Corey, always a pleasure reading in the morning your last post!

  14. Corey Rosenbloom Says:

    Not Afraid,

    I like how you think – it sounds similar to my experience. I’ve tried different strategies and oscillator combinations but have now settled on a variation of hybrid methods and trade set-ups that I discuss frequently here and focus mainly on those.

    Elliott is adding major benefits to my interpretation of price structure and projections and that has helped tremendously, but I’m learning even to cull Elliott back and focus on the ‘sweet spots’ like you described and not be caught in minutae.

    No one way is perfect and I encourage traders to develop their own hybrid methods developed through trial and error.

    I love the network the blog is creating and the ideas from you all as well. I’m so happy and honored to be a part of it.

  15. Corey Rosenbloom Says:

    Toad,

    Thanks for the encouragement! It took me a while but there was no magic formula – it just came down to defining patterns objectively, seeing them (literally) hundreds of times, and then starting with small ‘toe-in-the-water’ positions and building from there.

    It gets easier.

  16. Corey Rosenbloom Says:

    Anon,

    I remember those days when I first started. Having an account less than $25k and using day-trading tactics when you could only trade one stock per day and had to wait 3 or so days to trade again. Back then it didn’t bother me but now that would tie my hands so much as to make me useless! I never use full margin even now, but that’s because I over-focus on the risk-management side.

    I’ve lived it both ways (extreme greed and fear) – take care of the risk and in time the profits will take care of themselves.

  17. Corey Rosenbloom Says:

    Dacian,

    Thanks for the encouragement 🙂

  18. Anonymous Says:

    Hey Corey, I hope you had a better today.