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Tuesday, August 02, 2011

Comment gold

Mike wrote this comment in response to a question from David (see comments on the last post):

"David, one thing I have learned from X and others is to only take the best setups. My spin on this is as follows:

1.) Try to disqualify setups - eliminate them if they do not fall into my definition of "textbook".
2.) Of those that remain, rank them (usually a pros vs. cons for each setup) and take the top ranked setups.

This may seem like a time consuming task, but I can literally size up a setup in a few seconds. That is where the practice comes in - you have to train yourself to scroll through your watchlist, throw out the bad, rank the remaining, and make your trades. If you practice you can do that in a short time (seconds to minutes).

X wrote once that the job of a trader is to weed through the setups every day and throw out the bad ones, and then pick the best from the remaining good ones. Or something like that. Once you subscribe to that mindset, you start making better trades. Hope that helps."

I could not have said it better myself. And, here is the post that Mike referred to above.



Grove Under said...

Thanks for your feedback on the trade I posted. And great comment on staying focused on only the best setups!

* * * * *
I'm going back 4 months since I started day trading and reviewing each trade once again in great detail. I'm trying my best to relive each moment and understand why I took the trade.

I have over 600 trades to review, and I've made it through a month. So far, it's amazing how many I would grade C, D, or even F. Thankfully, there aren't too many F trades, and I'm encouraged that most of my trades generally have good intentions based on the fundamentals.

But so far, there are way too many C trades that I have taken. And as an aggregate, they don't work out well or are wasted energy diverting attention from managing and/or finding the good trades.

So Mike's comment is very timely as I perform my trade review. It's a real grind of an exercise, but very much worth the effort of better understanding myself.

Chips and Salsa said...


COF, 30m, 5ema, Fibs OR, short below bar 2, exit 1/2 at 3R, exit 1/2 end of day, nearly 4.5R net profit.

JBL, 15m, 5ema, Fibs OR, short below bar 4 (perfect offsetting bar), exit 1/2 at 3R, exit 1/2 above bar 19, nearly 4R net profit.

CBL, 5m, 5ema, Fibs OR, short below bar 5, exit 1/2 at 3R, exit 1/2 at $17, over 5R net profit. CBL continued to fall after my final exit. Holding a full position from entry until the session's close would have produced just over 18R! I like to take partial profits though, and I'm happy with one of my best days in months.

Uber-bearish day. S&P500 opened below 200-day sma for the first time in almost a year, so I suspected it wasn't gonna be an up session for most equities. I'm thankful I wasn't hurt.

t-money said...

Chips and Salsa,

I was just curious as to if you use an extra filter on Inside bars like on COF and JBL 30 min inside bars on 8/2. The only reason I ask, is that I scan for inside bars and there were about 30 of them or more from the gap list and high movers at that time. What made you choose those 2?

Chips and Salsa said...


If only I could slow down time and had the capital to trade all of the set-ups that come up on a scan. Yes, sir, I'm with you, as I saw many inside bar set-ups on the 15m and 30m, including JBL and COF. And of course, I couldn't take them all, so I chose these two because they sat nicely on the 50.0 and 38.2 Fib lines, respectively on the 30m chart.

What helped confirm my decision to short was that I also had the 15m chart pulled up, and I saw that there were nearly identical bars (3 & 4, 15m) offsetting each other on JBL. There were also similar-looking doji-type bars (3 & 4, 15m) offsetting each other on COF.

The 5ema was very close to JBL's bar 4, 15m and snugly tucked against COF's bar 4, 15m.

I also liked that the actual bodies of the trigger bars/offsetting bars were fully below the 38.2 Fib line.

One of the most consistent things I've found with the 30m inside bar set-up is a long initial bar, followed by a small inside bar that is sitting on the 38.2 line and could travel at least 1R (of itself) to reach the FE.

The more R-multiples of this small inside bar that can fit between itself and the FE, the more I like the set-up, even though JBL and COF were not stellar examples of this. This is a concept I learned from Trader-X about judging the return you can expect from your entry to your target.

I also VERY much like the small inside bars that are not aligned with the highs/lows of the initial long bar, but are instead pulled back and "tucked in" against the 38.2 line and could travel roughly 1R or more before even reaching the high/low of the initial bar. These are my favorite types of 30m inside bar set-ups.

An example would probably help. Today's FMCN (8/3/11), 30m chart, short below bar 2. Nearly 1R is achieved before the low of the initial bar is even hit, and it has even further to fall to reach the FE, although, in this particular case, it reversed pennies from the FE.

Wow, I am making this post much longer than intended. To answer your initial question, although I do run a custom scan for stock candidates, I do not use a specific scan for inside bars. I just look for them manually as I go through my watchlist. I hope this helps! I am writing so much, I'm thinking about joining Grove and others here and starting my own blog, lol. Good times.

And for Larry David, I leave a smiley face :)

Chips and Salsa said...


CIT, 30m, 5ema & 8ema, Fibs OR, long above bar 8, exit at FE, net 3R profit.

10m and 15m provide a clearer picture of the Double Bottom that formed today.

As the indices firmed up and started acting bullish, forming hammers on the daily, I noticed that CIT's 5ema started crossing over its 8ema on the 10m and 15m, as it revisited the RZ for a second time.

A break above bar 8 on the 30m would put prices back above the 50% Fib line and firmly above both the 5ema and 8ema on the 15m.

This was a more aggressive trade, but bar 8 on the 30m was the narrowest bar of the day and provided the kind of expansion that yielded more than 3R once the whole number of $38 was hit.

Chips and Salsa said...


CIT, 30m

One more thing I wanted to mention. Bar 6 is offset strongly by bar 7, and that helped me flag this as a solid reversal play.