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 December 30, 2003 Commentary
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Today we're going to look at the ES on a 3-minute chart,
again. I know I do that pretty often, but it's my favorite venue for showing
things. Today I'm going to show the anatomy of what I call a truly great trade.
By the time you get about half way through today's column, you'll likely not
understand why I called it a great trade. You'll see, though.
Let's start
with a chart of what I was looking at. When I saw the ES start to fade after
the open, I looked for the same thing that I looked for yesterday, a pullback
to a grouping that would give me a chance to get long again. I know this thing
has been rallying like crazy, but until it proves to me it's not going up any
more, long is the side I'm on.
When the ES started to pull back in the form
of an ABCD I added in some numbers for that pattern, and the grouping was
looking really nice. It may look a little spread out, but it's actually only
just over one tick wide! Now let's see what happened when the ES hit the
grouping.
The ES bounced a little off the grouping,
came back and 'tested' it, and then took off. I got a great entry signal at
1106. The ES started to stall and reverse near the previous swing-highs, and I
didn't like all the selling that was coming in. I decided to take partial
profits on one-third of my position. The arrow points to the spot where I
decided to take off some of the trade.
I'll move ahead on the chart now and show
what the ES did over the next couple of hours.
Now that's what I call going nowhere. There's nothing
like a nice two point range in the ES to put a trader completely to sleep.
Normally my style is to pull the plug long before this point. If the move I
anticipate doesn't happen, I'm out. But with the holiday week I decided to give
this one some room to breathe.
In fact, I was thinking of taking some profit
on any initial pop just so I could let the rest ride, given what kind of day I
expected, and what I thought was the likelihood of another low liquidity ramp
later in the day. So, what happened from here?
Some selling came in, and once the range was broken, I
bailed on the rest of the trade. The arrow marks the point where I closed the
rest of the trade. And what was the net result of the trade? Approximately just
a little over 2 points on the first third, and a half point on the rest. Not
very much, eh?
You are surely thinking what is so great about that? The reasons
why I think this was a great trade are many-fold. First, this is real-world
type of trade. Not only do most trades not rocket off in the trader's favor,
most trades are singles, or less. Many traders might have put themselves in a
position for this to turn into a losing trade. I followed my plan and walked
away with a little something.
Now, don't confuse that with being quick with
the trigger finger and taking quick, small profits. I didn't see the action I
expected to see when the first thrust started to fade. I based that on a lot of
experience. I'm not always right, but I feel that I'm right a lot more than I'm
wrong. That caused me to peel some of the trade off. That also allowed me to
move my stop to the area of breakeven.
I was going to let this thing do whatever it
wanted, to the point that I would scratch the rest of the trade at worst. I was
in the game, and if the ES took off, I was going to be a part of the move. It
wasn't to be, but I did the exact right thing and followed my game plan to the
letter. That's what makes this trade a great trade. I took a reasonable shot at
it, it didn't pan out, I walked away with a little something, and I can rest
knowing that I followed my game plan perfectly.
I was true to my plan and myself.
That's what trading is all about, in my opinion. I hit a big one here
and there, I hit a fair amount of singles and a fair amount 'almost singles'
(like today), and I get a few stop-outs. But if overall that nets money, that's
my goal. Real-world trading is rarely pretty. It's a grind. But I don't want to
work in a factory (he said, smiling).
Let's see what the ES did for the rest of the
day.
Not much to speak of for the rest
of the day. Sure, if I held I could have gotten a few more points on the rest.
But look at the chart. What was my edge to say that I want to risk my money on
the long side at the point of the second arrow? I see none.
This trade is
a perfect lesson in a trade that one could be proud of, even if it only made
enough money to buy lunch (for the month). What made all the difference to my
trading was when I finally got to the point that a big percentage of previously
losing trades were now being managed like this trade. Losers had changed to
small winners. That's when I really started to improve.
Even though
Wednesday will be a full day for stocks (half day for bonds), many of the
futures are on a shortened schedule, and hence given the holidays I will post
my next commentary on the weekend. I'll dabble tomorrow and Friday, though,
just in case there's anything that needs reporting.
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