ATPG looks broken at the moment when it can't bounce after that piledriver and with other oils coming backup.

Sold it and currently waiting to see...

ATPG cover and play the bounce

ATPG seems like a good short

What is probability?

It is a greater likelihood of an event happening over an event not happening.

Here's the set setup from this morning. I traded TNA long from right before it went to new highs. It stalled out so I took profits and shorted it. Some good momo for a few candles then it stalled again. I didn't go long but only waited because the short momo seemed strong.

Lo and behold I saw a doji appear on the QQQQ at the 11:15 candle. That said the probability of it dropping more was greater than not. So I took TNA short, FAZ VXX long resulting in profitable trades. No other reasons. NO thinking.

First chart is QQQQ. Screen capture is a few candles late. Red lines are support/resistance lines I draw on when I start which not coincidentally is right where the doji appeared.

Second chart is TNA short

Third chart is TNA cover

Reader Q & A 5/26/10

Hey Scott,

I don't mean to spam you, but I have question about staying in a winning position. Is there a specific procedure you have for adjusting stops? I know trailing the highs/ lows of the previous candles works, but how do you make it through the pops and drops against your positions? I'm guessing you can kind of tell when they are weak/strong pushes, and that's something Ill learn with more observation. If you could shed some light on the topic I would appreciate it.

Thanks,

Aynul (avid reader)

Hi Scott,

Your most recent post on how you enter into a trade early was a real eye opener. I am currently going live trading futures with a small account. I paper traded based on your teachings...that is go with the flow of the market. So i trade with the trend once price touches the 20/30ema and then counter trend trade when i see strong divergence on my divergence indicator....always taking small profits and taking a small loss when i am wrong. One thing i have learnt from the exercise of taking numerous paper trades is that at the end of the day i will be profitable, but to make a bigger day is to add to the winning trades. Due to the small nature of my account i still suffer from fear of losing my capital and thus don't add to the winners. Now i will look at entering earlier and getting out for a smaller loss. I am using range bars but can work with minute bars too.

It is funny, since i was just thinking about this this morning and then i read your post. Lol, i think i am heading in the right direction...if i have started to think like you.

Reading your posts certainly opened my eyes to a lot of tricks/tips that i can use to minimize errors.

On another note, on average, how often during the day are you wrong and take a loss, and how do you add to winners? Also, how do you come back from an early morning big loss...i seem to always make a losing first trade and don't know how to get out of this pattern.

Thank you,

Anon

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I found these questions in my FNG email box which I rarely check , so sorry for the delay in answering them

Aynul- It all comes down to momentum. With a strong trending stock,I'll constantly move my stop in the direction of the move. I stick to using the near time momentum for stop levels with these as well. That means I keep the stop just under a pullback candle for a long position for example.

With faster moving stocks I'll usually keep it at the original stop level until the momo says it is finished, then cancel the stop and take profits. These faster stocks can really bounce around and it is easy to get taken out otherwise. So it is better to let the original premise for the trade stand. When you can gauge the momo correctly, you are not often stopped out.

Taking profits go hand in hand with stops though. You must have a plan to capitalize on the opportunities that come your way. Big candles are a sure signal to me to take profits regardless of what else is going on.

Anon- Worrying about losing money will actually attract losing trades to you. It's like telling yourself "Don't drop the toast on the floor" Of course then you proceed to drop it. Your sub conscious only hears the command "drop the toast" so it does.

When you can get into the flow and have confidence in your edge and trading plan, then the results will come. Adding to your winning trades even a little bit will eventually make you more successful. Just keep those losing trades small.

Depending on market conditions I take a few or many losing trades. They are always small though because when I stick to my system it does not let them grow big. Taking many small losing trades is normal in this business. It also makes perfect sense to add to the winning trades.That what a successful trader does.

If you are always getting a losing trade first thing in the morning, why don't you try paper trading th efirst couple of opportunities that come your way to get' warmed up" . Then start in with real money .

Using momentum to place stops

One technique I use with great success is to use momentum to show me where to place stops. I use something I call near time momentum. Near time momo is the the price level to which the stock fell or rose to just prior to when you enter the trade. It could be 1, 2 or 3 candles previously.

I have seen these momo levels ( you can't really call them support or resistance levels) survive over 1000's of trades. Upon entering the trade, it immediately goes in your direction and away from your stop. It's also called stress free trading. The fleeting moment between entering the trade and before it starts to move is the only time that your position is at risk.

I figure that since the price level wasn't breeched before it will take something else to happen before it will. Whatever information the markets and the stock was affected by then will have to change. Day traders have a big advantage if they can process what is happening in a timely manner and act accordingly. It is a matter of getting into the flow and letting it tell you how to trade with the direction of strength.

When you see these price levels and sense the momentum changing, you need to quickly enter the trade and set the stop a penny of two higher (or lower as the case may be).

Don't hesitate when you see the momo change or you will be putting on too much risk. Don't fumble with position sizing. You should already know what you either can play with or have left to play with beforehand. Don't be thinking about the reward as you or no one else knows where it is going to go. The only thing you can control is the risk. Do it, and fast with this technique. Like the majority of my trading, it doesn't require too much thinking, only observation.

Here's VXX from today that illustrates the concept.

First chart is entry, second chart is exit.

Reader Q & A 5

Over the years you've been posting, you have made mention of the clock and its importance in your trading. Your attention to it has intrigued me and I have tried ever since coming on board here to put it in the same context as you do. It's hard to do because we aren't actually seeing your trades in real time. Would you explore the importance of the clock as it relates to movement and momentum? It clearly has patterns you've seen and represents a part of your edge. I'm curious if i'm seeing it in its proper light. Thanks much.

Forgot to add this... when you have a stock such as VECO on your watchlist, do you use some sort of alert to let you know it is a mover? If so, what are the parameters that trigger the alert, if you don't mind sharing?

-Blue Collar Trader

I trade using only a 5 minute chart. I have noticed that if a stock is trending strongly and then stalls a makes a pullback for instance, its better to take the long profits, short the pullback and then wait for a new 5 minute candle to re enter a long postion and set a stop just under the previous candle low. Timing is crucial , I watch the clock closely and every situation is different but using this technique has made me shedloads of money over the years. Risk is very low because if it turns and hits my stops then I’m out only a couple of pennies. If it works then I have a huge jump on the traders who wait. I might add quickly to my position since it is already a winning trade.

VXX this morning provided a textbook example.

Currently it is a sellers market (VXX moves opposite the market) so keep in mind that drives all my decisions.

Previously I sold the VXX long using this same technique at the 10:30 am candle, taking profits and am short this red candle which feels to me like a fake out. I’ll take it anyway but keeping in mind that the big money at the moment is VXX long.

So I wait until the red candle 5 minutes are finishing, cover the short and go long. It immediately starts rising again as the fake out sellers have no power against the buyers of VXX and the market sentiments in general.

Sell it after $1 run, taking profits and do it all over again.

At the same time I traded FAZ and earlier GG , EGO and they all did the same movements. The 10:30 candle on GG EGO were textbook examples as well.

For my alerts I only set it to show new highs or lows nothing more.

First chart is VXX entry,second chart is exit.