Welcome to the Trader-X blog!

> TRADEthemove.com - my thoughts
> meditationSHIFT (formerly "tad")- just say "om"

Wednesday, June 15, 2011

Mid-week post

Posted by Admin:

X is going to be off on vacation for the rest of June (and early July). He asked that I make a post a few times a week to facilitate anyone who wanted to make comments or discuss trades/setups.

Here is a photo of a squirrel striking a pose:



Times of Your Life said...

funny squirrel

Chips and Salsa said...

That squirrel is bidding 4 lots of PETM at $43.50.

My trading prowess has now increased 10% after seeing that picture.

Grove Under said...

Michael B:
Thanks for sharing your example of CU (6/15) and helping to retune my eyes. For me, it triggered and confirmed a key observation regarding current price action and Trader-X type pullback to RZ setups.


It seems like the piece that hasn't been lining up well for me is the moving average. So the CU trade helped me recall other similar setups from yesterday.

There were times over the past few years when Trader-X would not use moving averages in his setups, so I assume it tends to go in and out of fashion. Or perhaps I missed the details that it works better (or isn't as important) for certain setups.

I wrote about the VWAP last month (comment under the May 23 post), and interestingly enough, the VWAP happens to be working well, for now, to help confirm setup of the pullback trades. Who knows, maybe it has always worked, and I just didn't notice it before.

Here are a few examples where the moving average didn't help or potentially kept you out of the trade, but the VWAP provided good confirmation.

The VWAP is the dark blue line.

CU trade on 6/15
(Note: Fib range shown is PDH-ORL. However, Michael B. drew it over the opening 1st hour range)

KBH on 6/14:
(1st trade seemed like a wide range bar, and the 2nd trade looked was clean on 15 min chart)

LNC on 6/14:
(Buy arrow should be under following bar)

FTO on 6/14:
(15 min chart shown below, but on 5 min chart, VWAP was cleaner than mov avg)

Dominick said...

Hello X, hope things with you and the family have been going well. I have one off topic question. Is that you in that picture of Darth Vader driving a race car?

Chips and Salsa said...


To follow up from my previous post late last night (6/15/11), a few questionable candidates I found in retrospect on the 15m time-frame were:


PROBLEM: They almost all had to have one or more rules broken to make them work. E.g., shorting against green trigger bars; price action chopping around inside the RZ; 9:30 EST opening bar green/bullish before subsequent bars made a turn-around. These things don't seem like the makings of an ideal pullback in any clean or obvious way to me.

I don't know if the majority of these would fall under X's posting, "Bad Trades Sometimes Work", but the only one I think would be a truly valid set-up is MET. Wish I'd caught that one. The rest, I would have probably passed on.

By the way, I didn't notice this until today, but my RSG trade on the 30m chart would have offered the "perfect pullback" on the 10m time-frame (6/15/11). Wish I'd seen it, and I was trading this very same stock!

Chips and Salsa said...


ACN, 30m, 5ema, Fibs over OR, short below bar 3, sold at $54 for 3R profit. Wish I'd let a partial run for up to another 2R.

STLD, 15m, 5ema, Fibs over OR, short below bar 6, stopped out for 1R loss, then the stock cascaded down beyond the FE without me. Highway robbery.

The general market looked mixed, then bullish, then bearish. Weird day. I'm trying to be more like X, more "market neutral", at least when I perceive I can be without undue risk, meaning I take positions based on their individual charts and not so much based on the direction of the general market. I must admit, it is hard for me psychologically to do, but today, it panned out.

Chips and Salsa said...


CROX is a good example of a non-gapper that still honors Fibs.

Check out the offsetting bar 5 on the 15m chart. Fibs over the OR. The bar sits nicely on both the 5ema and the 38.2% Fib line. It runs all the way to the FE and beyond.

Another one I wish I had caught today. Meh. :\

Grove Under said...

Chips and Salsa:
Really appreciate your feedback under the prior post. You mentioned a lot of great points, including the fact that we're now entering summer, which can be like the summer Twilight Zone.

Maybe Trader-X has the best solution of avoiding times with less than idea setups...just go on vacation!

I'm very lucky today that I barely broke even after taking some less than ideal setups. Had I avoided those "beer goggle" setups, I would have had an OK day.

Trading when under less than ideal mental frame of mind when setups are lacking is indeed dangerous. Days of profits (or more) can be easily wiped out in a matter of minutes.

I will need to come up with a strategy and action plan to help me identify and navigate through these periods when the seas are rough and best avoided.

One obvious solution is to simply walk away from the computer, but as many of you know, it can be very tough to do that.

Question to all:
Developing the discipline to avoid trading and/or walking away from the markets when it's not producing your particular setups is critical. How did you develop that behavior and more importantly, maintain it?

Is there any internal dialog you use to convince yourself, or read certain quotes, or review your journal from past disastrous rogue trading days, or...

I can see how the conversation the other month about meditation could be a big factor. Maybe just reward yourself for walking away from the computer by going out and getting an ice cream sundae (although the healthier answer would be to head out to the gym)...

I'm still discovering something new all the time, so thanks for your help.

Times of Your Life said...

i think now (summer months) is time to test people's discipline and if you not sure don't trade instead and watched...
and find a solid setup that you want to trade like 0 to 2 trades a day.

@.@ past 2 days i lost some discipline and people say "don't catch a falling knife" and i can tell you i catch a lot of knives these 2 days hahahahaha

imo try to find as good setup as possible and find many conformation as possible before enter...(i guess A to B setups)

i heard aug is going to be dead too, but i am not sure

ya so that is what i am going to do tomorrow and the following weeks

Flowtastical said...


What do you think is the main reason traders lack discipline?

How do you think a trader should maintain it?

Times of Your Life said...
This comment has been removed by the author.
Chips and Salsa said...


ZION, 5m, 5ema, Fibs OR, enter above bar 9, stopped out for 1R profit. Got really choppy during lunch, but best 5m long set-up I've had in a while. Also set up on the 10m.

JACK, 10m, 5ema, Fibs OR, enter above bar 3, stopped out for 1R loss. Red trigger bar wasn't the best idea to execute against. Still love their Spicy Chicken Sandwich, though.

SBH, 15m, 5ema, Fibs OR, enter above bar 7, partial just below FE when my profit hit 3R, the rest at 2R. Also set up on the 10m and 30m.

Chips and Salsa said...

Correction: On SBH, I drew my Fibs over the first hour's range, not the OR, which would be the first 30 minutes' range.

Times of Your Life said...

um...SBH is count as orderly pullback?

Times of Your Life said...

won't the bars count as too spiky?

Jay said...


I am not trying to be flippant when I say this, but losing money gives me the discipline to wait for better setups. I hate losing and after every losing day I reaffirm that I will only take good setups the next day. I averaged less than one trade a day this past week. And if my current losing trend continues, soon I won't be trading at all. :)

Another thing that helps me reduce my number of trades is that I only have one pattern/setup that I look for: gap up, pullback to RZ, then enter on a break of a green hammer. Sadly, I am not finding enough trading opportunities, so I am looking to add another pattern to my target list.


I have Robert Prechter's book "Eliot Wave Principle" but I found that I just could not get into it. The problem for me was picking the scale of the wave patterns. Since they are fractal, you can find a wave pattern at any scale and thus how do I determine what scale to use? But in some sense we are using wave theory in X style trades: gap up, then a consolidation or pullback, then a move up. That is a wave.

Klaorman said...

I haven’t been finding much lately either:

6/14 trades

CSIQ 24th 5m bar
Yep, 24th bar. I saw this dip a bit to the 8ema and gave it a shot, even though it didn’t get near the 38 fib. It hit the high, but that was only good for .10, so I held it and got stopped out. It did break out later (4th time’s the charm) and hit the FE, but I wasn’t watching it at the time.

INSM 9th 5m bar
I completely missed this setup, a small shooting star at the 8ema and 38 fib. At times I just forget to go through my list every 5 minutes. It hit beyond the ORL a bit and bounced.

6/15 trades
I took the same HPT trade that Chips and Salsa took. It looked OK, but like CSIQ, it didn’t really pull back enough. I got stopped by one penny; it hit the ORH afterwards.

6/16 trades

CELL 7th 10m bar
This setup bar was a doji at the 5ema and R2, but under the 38 fib. It also came after a relatively steep drop (a 2-bar pullback after a 4-bar move), so I was a bit doubtful, but I still tried it and got stopped.

NVLT 6th 5m bar
This setup bar came after an even steeper drop (a 1-bar pullback after a 5-bar move), but it worked, hitting beyond the FE before falling. Too bad I didn’t see it in time.

6/17 trades

CLS 5th 5m bar short
This bar was a green shooting star that straddled the 50 fib, but the body closed below the 5ema, and I just liked it somehow. I covered after it hit the ORL and started bouncing with the market.

SA 7th 15m bar
The setup bar here looked really good to me, being a doji hammer on the 38 fib and 5ema, but looking at it now, the previous bar was an indecisive spinning top. It tried a bit, but I got stopped out later.

CATY 7th 10m bar
I didn’t trade this one because the pullback wasn’t to the 38 fib, and now I also see that the previous bar was a spinning top, but it hit the FE exactly before dropping.

Chips and Salsa said...

Times of Your Life,

You make a good point. SBH is certainly not perfect. Those spikey bars can be tricky, to be sure. And price action falls within the range of bars 3 & 4.

But I liked the way bar 7 was the narrowest bar of the day, closed near its high, was hammer-like, and sat squarely on both the 5ema and the 38.2% Fib line.

Bars 4, 5, 6, & 7 all had lower highs. Bars 5, 6, & 7 all had lower lows. This was enough of a pullback-type pattern for me to give it a try. :D

As far as Elliot Wave Theory, I tried reading about it a while back in a few books and blogs. I just got lost in all the interpretive complexity, as Jay mentions. Almost like looking at a cloud and having 100 different opinions on what animal it appears to be. :]

Some folks seem to do well by it, though. It's just not for me.

Chips and Salsa said...


I second Jay's comment. I have blown up my account more than once in the past, and it forced me to take a stern and painful look in the mirror to really change what I was doing. Again, it had to happen more than once for me to start getting really strict.

And honestly, allowing my identity to be too closely tied to how well I am doing in the market has tempted me to take on too much risk as well. I have to be somewhat, but not entirely, indifferent and dispassionate when I win and lose. But especially when I win.

Winning tempts me to take even bigger risks next time around because I have the mindset that now I'm playing with the "House's Money", so to speak. I read once on Brett Steenbarger's site that traders are most susceptible to a downfall after a winning streak.

The other thing that helped me is seeing that there are great set-ups out there more often that I might think, so I don't have to settle for mediocre set-ups as being the only thing I believe to be available. But I have to give myself time to find the stellar ones and be okay with missing them. I have increased my daily chart analysis up to, at times, 1,000 stocks, and it can be mentally draining.

However, I do find stellar set-ups both during market hours and after the close by combing through 100's of charts. The only way for me to accomplish this, though, is to trade much slower time-frames. Just a personal preference for me, but it is working.

I still have losing trades, but I try to keep them under control. One thing that limits any single day of the week from destroying my long-term goals is limiting the number of trades I take per day, regardless of how many are winners or losers. It has varied lately, but I never exceed 3-4 trades per day, and I ideally shoot for 3 or less.

Sorry for the diatribe. Just a lot of thoughts I hope may help in some way.

zentrader said...

awesome pic...

Jay said...


Thank you for posting your charts. The two on 6/16 are very similar but went opposite directions. CELL was a "top out" trade and NVTL was a classic pullback to RZ trade (not sure of X's name for this).

I am going to print them out and save them for study.

I think the key difference is that for CELL the entry bar is a doji (you noted this risk yourself) and for NVTL it is a hammer. Interestingly, if you waited for confirmation of the doji by using the next bar as your entry bar, you would not have taken the trade.

I wonder, though, about the difference between the setup bars being on the 38 fib vs below the 38% fib. I do not personally have a difference in my mind between the 50% and 38% fib RZ lines in my trades. I just want to see the pullback reach that area.

How do you guys think about the RZ area and riskiness?

QQQBall said...

Some of you guys are touching on deep subjects. The first thing is that you can twist yourself into the ground trying to optimize the charts. You just have to accept that there is no holy grail and that you will take loses. X's charts are fairly sparse, I'm guessing that is not an accident.

Another key is patience and discipline. When I was going sour, I would limit myself to one trade a day and if it was a loser I stopped trading...

Anonymous said...

Jay, in my experience the best setups bounce off the 38%. The second best bounce off the 50%. Anything that breaks below the 50% is usually destined for failure, imo.


Anonymous said...

X has said that in the morning before he trades he reminds himself: "I do not have to trade today".

For me, I now do this and have taken it a step further. Before the open, I list things to do that are important to accomplish in case there are not good trades to take or if my mind is just not in the game.

Was in a trading room once and someone posted a very interesting remark: Trading is the only job he has ever had where he can go to work and lose money.

Good trading differs with the traditional work ethic because sometimes the best thing is to sit on our hands and do nothing.

Think this is why it is said that one should have other sources of income so as to not depend on trading income when what we do is not working.

Michael said...

Anon, that is a point people don't get. On bad days, we LOSE money...it isn't just that we don't make money. If on my bad days all I did was NOT make money, that would be great.


X touched on it in his post about comparing traders with baseball players.