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Friday, February 06, 2009

How I Trade - revised February, 2009

First things first

Before you read this post, read this one:

Looking ahead to 2009

And read this one:

Chasing Success, again

My revisions should not be confused with what I wrote about in "Chasing Success" - they are a natural progression of my trading based on the same strategies I have used for over ten years, but refined and simplified to help my trading fit with other goals in my life.

Also, there are years worth of charts on this blog. I am changing my style to be simpler and faster, but that does not mean the previous setups are no longer valid. They still work...and most work very well. But in my desire to be out of the market after the first 2-3 hours every day, I don't have time to wait for moves to unfold. The charts in the past use the previous day's action as a framework for entries and exits; now I will be using intraday action only.

It all comes down to what you are comfortable with - many people will not like the fast moves I focus on now. I was not comfortable with the fast moves for years. Do what is best for you, but regardless of what that is you can learn from all the charts...yesterday's, today's, and tomorrow's.

My rules

1.) I am using 10-minute charts. My focus for the past year or two has been 5-minute and 15-minute charts, with 15-minute charts being the predominate timeframe for the majority of my career. So I split the difference! Actually, I looked at 1,000s of charts and - to me - the 10-minute charts offer the most potential with the least risk.

2.) I don't enter a trade in the first 30-minutes (well, 99% of the time). That means the earliest I enter a trade is after the third 10-minute bar for the morning completes.

3.) I plot Fibonacci lines over the first 30-minutes high/low.

4.) My Fibonacci lines are comprised of the following - the high, the low, the 1.382% extensions (above/below the high/low...what I refer to as the "Fibonacci Extensions" (FE for short)), the 50% retracement (and visually I know the areas above and below the 50% retracement comprise what I call the "Retracement Zone" (or RZ for short)), and the half-way points between the 50% retracement and the high/low, and the high/low and the Fibonacci Extensions (FE).

5.) Other indicators - I pay special attention to the high and low of the first 30-minutes, which (of course) is plotted in my Fibonacci lines. And I plot standard Pivot Lines on the chart (actually, they are automatically plotted by my software). I use Pivot Lines primarily to gauge the health of the gap (more on this later).

6.) As always, I use candlestick charts; I rely heavily on candle patterns.

There are no other indicators - no moving averages, no volume, et cetera.

What I trade

I am looking for a quick move off the first 30-minute's range. As I said earlier, I can enter on the fourth 10-minute bar but most of my entries occur on the fifth, sixth, seventh, and eighth bars. There are several patterns, but my favorites are:

> the "top out" where price cannot break above the opening range (OR) high (short setup).
> the "deep pullback" - a move down and pullback to the half-way point between the 50% retracement and the OR high (short setup).
> the "push through" where price moves up, consolidates, and pushes through the OR high (long setup).
> the "re-take" where price falls through the OR low, moves back up, and forms a setup above that line (long setup).
> the perfect pullback - a move up, pullback to support and continuation up to new highs (long setup).

This is NOT an all-inclusive list, as there are variations of some of these setups as well as others like the "u"...and one setup where I break my "don't enter a trade in the first 30-minutes" rule. But the five I listed above comprise 80% of my trades AS OF TODAY.

Next week I will post some trades and give examples of the setups. If you want to have fun, look back at the charts I posted over the past five weeks and see if your can figure out what chart goes with what setup.

Have a good weekend, and don't forget to check out "Five Rules For Life"...Dr. Brett made a submission that I referenced in my links on the right!

I'll leave you with Darth Vader driving a race car.



Complacent Panda said...

I like that.

I should keep a darth vader mask in my (race) car and drive around with it on.

Although, I wouldn't mind a Chewie mask...hmmm.

PS: Awesome info on your trading strategies.

OONR7 said...

thanks for ruining my weekend :)

Darren said...

X, two questions: does your software automatically plot the fib lines, and do you NEVER trade after the first few hours now.

Thanks for a great blog!

Trader-X said...

Darren - yes...I pick the high and low and the other lines are plotted automatically. I honestly don't think you can do it manually with a watchlist of any reasonable size.

I use RealTick software.

On your second question, I would never say never. Maybe once a week I will. I have always maintained that trades taken later in the day are lower probability, so even before I simplified the majority of my trades were entered in the morning session.

Spencer said...

This is great, thanks. I look forward to charts next week. You have the best trading blog on the net.

Trader-X said...


Why? You hate Darth Vader that much?

Thanks for the positive feedback everyone. I am going to have a beer.

Tony B. said...

Thank you for putting this up so I can read and study those charts over the weekend. I still don't understand why you share your methods, but God bless you. You are a nice person, and that is one of the best things you can be in this life.

Tony B. said...

PS, I am really digging the Five Rules for Life site. Thanks for turning me onto it.

TonyB said...


Looks like there's another TonyB on these boards so I guess I'll change over to AnthonyB. This is an interesting post and I thank you for it. I'm off to your earlier chart posts to see if I can match them up.


Greytrader said...

Do you still exit at the 1.382% extension ?
Using the OR to draw your fibs on the 10 minutes, it seems a lot of moves blow right past the FE.

BL said...

Wow, Just by reading your blog I feel like, I completed Dana's Five Rules for Life. 1.) Be willing to learn. 2.) Check your ego at the door. 3.) Utilize technology. 4.) Don't give up. 5.) Enjoy life.
For the 5th one I will have a beer while reading your Blog.
Thanks for Sharing!

anand said...

dear X, I follow your blog from last one year or so(I found it when you were on vacation), and have got much. for now, I want to know about STOPS placed by you in your trades. will you throw some light on it? regards. mehul.

Trader-X said...


My use of stops is well documented through many years of posts on this blog.

99.9% of the time my stop is the opposite extreme of the bar that triggered the entry.

Thanks for the kind words!

Pupsor said...

Hello X,
i try to translate your post for Russian people. You'll be famous and popular! ;)Thank you.

But if you can - show examples of your trade. With ploted charts and if you can - with STOP point.

Trader-X said...

TonyB - there is really only one! I will boot the other off immediately.

Pupsor - with the exception of the past six weeks (when I have been going through the process of simplifying my trading) I have posted charts with detailed notes including stops. Please do a search of the archives...the blog has been around for years and there are probably over 1,000 charts you can study.

Thanks for all of the positive feedback.

Prospectus said...

Awesome, X. I'm so glad for your return to the blogotubes! Looking forward to more posts, and I thank you for all the wisdom you have already shared with your readers.

If there are any Think or Swim users out there, I'm going to write some code to automatically plot the OR high, low, and fibs as X has described. I'll pass it on when finished.


James Lai said...

Hello X,
super blog, thanks for sharing your wits.
You have mentioned push through for LONG setup. Do you have push through for SHORT setup ? Is this push through for SHORT setup only with low success probability ? Can you give some hints about the difference between these long and short setup? thanks in advance.
Best Regards.

Pupsor said...

Prospectus, i think many people use TOS. It's very good idea, Prospectus! Inform Us

anarco said...

I simply want to add my thank you!

As per point 6, "I rely heavily on candle patterns," I continue to learn from your candle interpretations and insights.


Dinosaur Trader said...


Thanks for the post and for all your work here. I know it takes a lot.

Quick question regarding Fib lines... are they gay?



Trader-X said...

James - I find the push through for short setups is less reliable than the long setup. I still take them on occasion, though. I will try to point out some thoughts when I post charts.

DT - if by "gay" you mean happy and totally awesome, then yes. Yes they are.

Rudy said...

X, as always U R da Man!

Gary said...

X- I have a question about how you manage trades. Do you exit before your stop or target is hit based on the price action. Say you go long and place your stop loss order at the bottom of the entry candle. If price action doesn't behave as expected would you close out the trade for less than a 1R loss? Or, do you leave it alone as that is the price you determined would prove you wrong? thanks. gary

Prospectus said...

I put up the Thinkscript code for Trader-X's Intraday Opening Range, 50% Fib and Fib extensions as he has described above. If you use Think or Swim, you can get the code here.

Trader-X said...

Gary - I will exit if price is not doing what I think it should do...ie, taking too long to unfold or stalling at a minor support/resistance level.

Many times it will come back to bite me and the position will move to the target, but many times it will be the right call. It is like anything else - you just have to pick what you are going to do and stick with it.

PhotoBone said...

Hey X, could you elaborate more on your changing to plotting Fib lines on the opening 30 min verses your older method of the prior day's high/low and the OR high/low? Is it because of your smaller trading window of the first few hours? If you were going to trade the whole day would you be more inclined to use your older method? Thanks!

PhotoBone said...

I found your earlier comments on plotting Fib lines... Thanks!