September 26, 2006
Keeping an Eagle Eye on the Broad Tape and the Importance of the Scratch
UglyChart is one of the must-read stock market bloggers because he frequently reports on his day trades in great detail (and those new pop-out charts he uses are funky). In today’s post he writes about two short trades and one long. Before reading his post, I was scrolling through several hundred charts earlier this morning and thought to myself: Any shorts held after 11 AM probably failed.
The interesting thing about his ADM trade is that the set-up bar drew at 11:30 (I time-stamp my bars at the end of the period), long after the broad market action had clearly turned positive. After getting filled short, you would have had over an hour to watch the broad market run further against you before finally getting stopped out in ADM a little after 1 PM.
If there was ever a trade which you had plenty of time to scratch, this was it. No disrespect to my main man Ugly, but playing the short side here was “pissing into the wind.”
September 26th, 2006 at 1:07 pm
Hi CM, I shorted MSCC today at 11am bar as typical dummy play. It didn’t work very well but didn’t fail either.
September 26th, 2006 at 2:18 pm
sonny: Yeah, it didn’t fail but it probably would have paid to just scratch it and not suffer the mental agony. ;-)
September 26th, 2006 at 2:39 pm
I appreciate your comments as I am a humble student of your dummy system. Even though I noticed the strong buying at around 11am, it was hard for me to decide to look long because everything was still red. The force is not as strong with me as it is with you, yet. So I decided to be open minded and consider both longs and shorts.
I covered half of ADM at about breakeven because of the strength, so I only lost 0.6R on the trade. I was also able to get out of GOOG for only a 0.3R loss. I don’t like having 0% win rate for the day, but as long as I stick to the system I’m not upset.
September 26th, 2006 at 3:46 pm
Chairman, could you explain how that chart is different to your Trading For Dummies method? It looks a lot like the perfect setup - but was just one of those that didn’t work out.
And also, how do you recognise after 1 bar that clearly the bulls are back in power? Surely you’re saying “clearly turned positive” in hindsight.
September 26th, 2006 at 3:48 pm
Ugly: I think of the Dummy Lessons as imparting basic principles and not teaching a system per se … in any event, it’s easy for me to say in hindsight this is the way to go (even though I believe my trading senses are still good and I would have reacted correctly in the heat of battle) … the force is clearly with you (glad to hear you actually scratched the trades, more or less) and I foresee the day when the student will surpass the master (or the elite professional, which is what I humbly call myself). ;-)
September 26th, 2006 at 3:51 pm
Sharky: Right, it is a good Dummy set up that just didn’t work out, and it didn’t work out because the broad market went the other way. I’m not pointing at that one bar in AMD and saying things had clearly turned, I just put the arrow there to reference the point where I saw the broad market turn (yes, using hindsight, but as I said in the comment to Ugly, I’m sure I would have reacted to that turn in real-time).
September 26th, 2006 at 5:11 pm
[…] Keeping an Eagle Eye on the Broad Tape and the Importance of the Scratch […]
September 26th, 2006 at 5:31 pm
Alrighty. I bow to the elite professional.
September 26th, 2006 at 5:55 pm
Sharky: The elite professional thing is a tongue-in-cheek inside joke … I would never say something that ridiculously pompous about myself.
September 26th, 2006 at 7:58 pm
I know. I have a very dry wit, which isn’t really noticeable in text. Just like how sometimes you watch a TV show, and if you know they’re joking then it’s really funny, but if you think they’re being serious then it’s the world’s worst TV show.
“The Office” is a good example, except I knew they were joking and I still didn’t find it funny.
September 26th, 2006 at 10:26 pm
I also believe in keeping an eye on the general market direction, but there are those like traderx who disregard market completely and still do very well. What I am getting at is that just because the market rallied does not mean the same thing to everyone.
September 26th, 2006 at 10:41 pm
Sharky: I found “The Office” extraordinarily painful to watch (but very funny as well) … Ricky Gervais is a good comic.
the man: True, but I found over the years that keeping an eye on (and reacting to) the direction of the broad market improved my day trading results.
September 27th, 2006 at 3:56 am
CM,
I was caught with my shorts down yesterday. I did cut my losses…..a bit. Looking at the tick distribution, it was not as bearish as I first thought. If one uses TIKI as a buy progam reference, buy progam when TIKI exceeds 25, then there was 5 buy programs by 11:20, compared to one sell program. I wish I had been watching that….doh. I was not, just tick and trin, which was decidedly bearish early on. Thanks for your this post, very helpful!!
September 27th, 2006 at 4:54 am
“The elite professional thing is a tongue-in-cheek inside joke … I would never say something that ridiculously pompous about myself”
So I can use it, then?
Do you guys use the daily bars for context at all? If you’re trading off 30min bars, I assume you’re trying to capture the day’s range, so…
The ADM daily chart just completed an ABC leg down. The A wave ran from 45 to 40. One could assume an equal length C wave starting at 42 would run to ~37.
The Sept12 bar trades down to 37. It’s the 5th consecutive selling day and the heaviest volume in a few months AND it closes well off its low - which suggests a selling climax. All the sell tickets that might have helped your trade, can’t because they’ve already been written.
After the rally to 39, we’re testing 37 and you are shorting into this level(?)
Even without broad market input, I already know the daily chart of the instrument being traded does not support the trade and I would pass.
September 27th, 2006 at 9:45 am
clue: Thanks for your view … you sound like an elite professional to me. ;-) I did look back at 9-12/13 and thought yeah there’s support at $37 but if that goes kaput then there could be a whoosh worth risking $0.25 on.
September 28th, 2006 at 3:07 am
Hi CM,
“but if that goes kaput then there could be a whoosh worth risking $0.25 on”
ok. I can see that.
A tight risk point buys one a degree of freedom in his scenario building, don’t you think?
For myself, I’d have waited for a second or third test before playing for the woosh at that level.
Thanks for your work here.
signed,
SuperEliteProfessional
September 28th, 2006 at 8:11 am
clue: One of the keys to being an elite professional, or a SuperEliteProfessional like yourself, is to use the proper technical trading terminology such as “kaput” and “whoosh.”
September 28th, 2006 at 10:27 am
Ah ha. Light bulb turned on. I have been using “plink”. Not effective at all. “Plink” does not hold anything to “WHOOSH.” So much to learn. For instance FBP went plink for me today. However, WOR went whoosh. A small whoosh.