Trading the NQ (Paper Trading ->Live Trading)

I am officially going to start paper-trading the /NQ in my spare time on Think On Demand. I recommend Think Or Demand to everyone because it really is not as buggy as it used to be and is a great way to practice. The only two complaints I have about Think On Demand is that the feature doesn't charge commission so it is misleading and also, the fact that your P&L is always a running total instead of broken down on a day-to-day basis. 

But yeah, I have been trading the futures market on ToD here and there but now I am writing it down to commit to it. I recently realized that I was not doing the deliberate practice that I needed to get better at trading. I have not been practicing enough, and when I was practicing, I wasn't learning anything. Once I make $1,000 with one contract, I am going to go apply for futures trading through ToS and use real money.

I'm going to be upfront. Regarding futures trading, I am having trouble focusing on a timeframe and a trading method but I have found some potential in using the Opening Range and Fibonnaci Ranges on the 5 min charts. At the moment I have not gotten a grip or set any concrete rules so my paper account has been volatile.

I will write down my thoughts and ideas about trading futures. No one wants to read entries about paper trading I'm sure but I need to document my ideas/thoughts, and this method allows for feedback unlike the 30+ weekly journal entries I have in Word documents. Plus I don't have the capital to learn lessons with real money at the moment.

Trading Specifics

- I have a six tick stop loss aka $30

- No trading in the first 30 minutes until I see what the range is for the day

- Note the close was the previous day and compare it to the open for today

- Do NOT buy unless the volume accompanies the breakout/breakdown

- I move my stop higher only after:

1. The contract reaches an intended target: Support/Resistance/FibonacciLevel/Opening Range etc
2. The contract explodes higher/lower in a rush and there is a potential for a retracement that will give it all back.
3. The contract attempts to break out and fails and starts heading lower

Areas that need work

- I have cut down the intraday trades drastically but I can still trade even less. This has to do with being more patient and only trading optimal set-ups.

- I want to simplify my trading and make it as easy and natural as possible

- I am so focused on the intraday movements that I often completely disregard the longer trends that are taking place. I know resistance for the last 2-3 days but I have been looking at futures with a magnifying glass and missing the big picture.

- I need to create some bonafide set-ups that I can stick to

Areas I am unsure on

- I believe I have too many market internals that I watch. I feel like 1-2 might be redundant.

- I shift between a 2-min chart, 5-min chart and a 15-min chart. Perhaps I should only trade when the 15-min chart is bullish and 5-min shows a good entry level because I am not scalping trades so the 2min chart is pretty pointless?

- I risk 6 ticks which is around $33 for the /NQ (after commission). The contract requires a margin of $3,500 so I am risking around 1% per trade. That is more conservative than I generally am. I want to risk 1.5-2% per trade. However, another part of me feels like this will decrease my risk:reward ratio and won't be advantageous. Perhaps I can do a 9-tick stop when I am extremely confident in an ensuing move or a volatile day and a 6-tick stop when I am not as confident or when it is a slow moving day.

Thanks Ichi!

3/29/11

Thoughts

• Be patient and willing to wait out the trade to be proven right or wrong. You are not trying to scalp trades so do not trade as if you are. Be extremely patient and let the trade develop over an hour or however long it takes

• If there is no volume, I just sit on the sidelines. Price action does not spur trading, volume spurs trading.

• Since I currently believe volume is such a pivotal point of day trading, I am going to read a book on trading based on volume. I have a hold placed on 'Tape Reading and Market Tactics' by Humphrey B Neill at the local library to build more knowledge on this area.

• You can get better at trading futures quicker than you can at swing trading stocks because you have a lot more opportunities and trades to learn from daily so you will gain experience faster.

• Pay more attention to the price and the volume than the indicators. The price and the volume tell a story and the indicator shows if there are divergences

• It is all about finding the high probability plays. Forget about buying in the middle of a range or buying when there is low volume on the breakout/breakdown. Accept the fact that there will be opportunities that I will miss out on, but on average, because I am trading higher probability plays, I will prevail in the long run, which is what the game is all about.

• The $TICK appears to be a good indicator to watch as an indicator.

• The larger the range of trading, the better the risk:reward. If it is a consolidating day, it is not necessarily worth trading because you are risking the same amount of money as a volatile day, but you are less likely to make any real bank before you encounter resistance. That is not worth trading.

Trading

10:05 – Entered long. Missed the beginning of the move because I was looking at market internals and did not have the chart up. I have to pay 100% attention to the market when they are open because daydreaming literally costs me money. Have made minimal profit but adjust the stop loss because if the market sells back to where I got in, I believe it is a bearish indication so I want to get out before that happens.

10:09 - The 3-min chart of the TICK showed a big blow off top after the push higher. I am concerned that this might spell the end of the rally for the moment or at least a slight breather while traders contemplate whether this is a good place to sell or to add to positions/get into the market

11:05 Exited the trade because I saw that the 2320 mark was heavy resistance that had been tested previously. Also volume constantly dried up when the resistance was encroached.

11:28: Entered the play because there was a large volume of selling to the downside and there was no nearby resistance really to stop the sell off. Was concerned because the $TICK was still in the green even though the contract was selling off. However, the VIX was increasing. I decided to move my stop forward where resistance had formed for the 2min chart. Admittedly six minutes of trading does not really give a good idea of support/resistance and I was quickly stopped out. I was expecting a potential rally however because of the $TICK showing hidden bullishness and the UVOL/DVOL rsi still being in positive territory for the most part.

11:36 – Adjusted my stop to a tick above my entry. Was promptly stopped out for being impatient and trying to force the trade too soon. I was right to want to tighten my stop ASAP on an extremely bullish trending day but I was too soon on pulling the trigger

11:43 – There appears to be support here at 2315 but the UVOL/DVOL both appear to be dropping heavily which I believe is a sign to at LEAST sit on the sideline and to potentially establish a short position at the next level of resistance or when 2315 is broken with volume.

12:29 – Saw that there was an ensuing sell-off and entered but quickly liquidated position because the $TICK was bullish and even though there was a spike on the VIX, the UVOL/DVOL was also showing bullish divergence.

12:35 – Stopped out after adjusting my stop. Made about $15. Was unsure about the rally because the $TICK appeared to be showing weakness. Perhaps I adjusted my stop prematurely because it did not fall under the criteria I have set for raising my stop

1:12 – I got stopped out after missing the initial part of a breakout and entering the trade soon after. I adjusted the stop to be a tick below my entry when the trade went in my favor, however, when the retracement happened, I noticed it was on low volume and so I was about to return my stop to the initial position but I was too slow on pulling the trigger. However, on the flipside, the $TICK did show a really big blow off top after touching the +600 mark.

1:26 – Entered a trade because there was a big drop in the RSI for the UVOL and the DVOL. Also, the TICK was reaching all new lows. Surprisingly the VIX was lagging all of the other indicators in the divergence. I think perhaps the VIX is good for confirming a bearish sentiment, but not in predicting a downward move. There was a break of support/resistance per say, but it was not extremely obvious. It was a break below about four 5-min candlesticks that were consolidating. What was more important was that about 2 minutes in, it was clear that there was a likelihood of there being an above average volume on the candlestick.

2:25 – Entered some more trades that got stopped out. Was getting frustrated but I put things in perspective and will tighten up the trades that I decide to take.

Post day analysis

• Too many trades done today. Didn't document them off. The day was full of trading opportunities in decent volume but most days are not like that in my experience. There was 1-2 trades were I entered and then stopped myself out of immediately after 1 tick or before the market moved because I realized it was not a high probability trade.

• Paid attention to the $TICK as a confirmation tool for entering plays. It helped a lot

• The last 30 mins or so always seems to have a lot of movement but so far it has only been noise that I can't trade

• Beginning total = $100,000

       End of day total = $100,000

                       Breakeven (would be a loss IRL after commission)

Quote:

Originally Posted by fast 

Have you considered tick charts?

no. I never really understood them. They are related to volume though, correct? If so, they might be a good chart that I will consider using. Can you explain them some more please

Thanks for the idea, fast I got my google on and have been testing tick charts for a few hours trading. I might add it to my repertoire for good.

3/29/11

Starting capital: $100,000

Thoughts

• Does volume dry up or increase when you are nearing support/resistance?

• Don't just focus on the Opening Range. Pay attention the trendlines that may be developing intraday as well.

• Mentally simulate potential outcomes so you are prepared for the best and the worst and are well-grounded in reality

• http://emini-watch.com/emini-trading/tick-charts/ <----This link helped me understand tick charts.

• Things to pay attention to on Opening Range Trades:

1. What has been the longer term trend on the 15min/hourly charts

2. Was there a gap and was it faded?

3. Did the opening price get encroached or is the trend so strong that it continued in one direction since the open?

9:30 – I think that a bottom might be put in regarding the gap being faded and currently testing yesterday's high.

9:35 – First trade = stopped out. The market bounced as I expected but after it ran higher, I entered and got stopped out on the pullback. It was a low probability play and I knew it as soon as I entered. I believe the thing that frustrated me was watching the bounce correctly and not taking advantage of it. These things will happen so I need to focus on the signs and not get antsy if I miss out on a play. Stay cool, calm and collected. Loss of $30

9:50 – UVOL bullish ADVN neutral/bullish VIX bullish. Chart fighting resistance at 2330. Volume appears to be drying up as the price action gets close to the 2330 level. The $TICK is hovering around the 0-line as well.

9:57 – Price started drifitng higher about 5mins ago, but only entered when I saw the run up with the $TICK confirming the move higher. Decent spike in volume so far as well, showing interest in the move. Not a lot of support for me at the moment though... ENTRY 2331.75 Intended exit 2337.75 area (The Opening Range high)

10:04 – Stopped out here. Perhaps I need to use two candlesticks to confirm an entry instead of one. Initially the move was in my favor, but the move reversed on my with the ensuing candlestick. If I had a 9 tick stop, I'd still be in the play. I am going to keep track of how many times I would still be in a play vs stopped out to see if I should adjust my stops.

10:18 – The ADVN and UVOL are constantly gaining momentum IMO but this is not being translated on the charts yet. $TICK still hovering around neutral territory so neither the bulls or the bears have taken control as of yet.

11:15 – Entered the play on a break above the Fibonacci Retracement mid level on heavy volume and increased volume on the 2^nd candlestick as well. Contemplated moving the stop higher but because the trend is bullish I think it will break above the Opening range high.

11.38 – Stock has used 2336 as support for the last 4 candlesticks so I moved my stop just below that level. Also noticed that the $TICK was showing a neutrality while the stock was hanging around support so I think I did the right thing by moving my stop up. Got stopped out just now for a $10 gain.

- Rest of the day: Fooled around with tick-charts. Ended the day down $40.

Daily Analysis

• I had a bullish bias today because that is the long term trend. However, although the market was bullish on the day, nothing in the $TICK signaled a sentiment that was ready to rally. Stayed in neutral/slightly bullish territory for the majority of the day. After a gap up to open, rallying is not the only sign of bullishness, but also not selling off is a sign of bullishness. I will remember this for the future

• To summarize the price action on the day. Gap higher to open ---> gap was faded--> NQ found support @ previous day's high ---> bounced higher back into the Opening Range low ----> consolidation ---> move higher ----> test Opening Range high a few times ----> Sell off going into the close

• Don't let emotions get the best of you. Just because you miss a trade does not mean you should rush in on the next set-up that looks decent. Save your principal for only the best trades. If another great set up doesn't come for two days, sit on your hands and wait. There is no time limit when it comes to being patient and making easy money.

• I still have to figure out how I want to implement tick charts. Today was my first day using it and I don't want to throw everything else out the window just yet, but the tick-chart does seem like the best tool to use when volume picks up and the market gets in a frenzy. Using $TICK and the tick-chart, I sneaked in and correctly picked a bottom on a sell off in the last 15 mins of trading which is something that has been too risky with the 5-min charts.

• Perhaps I can also use tick charts when the 5-min chart indicates a test of support/resistance but then the question is why not just use tick-charts all the time?Off the top of my head one reason to not go 100% tick charts is the cleaner correlation with my market internals as I can set them all to the same time frame as my time-based charts

• Whenever I start to focus on something to get better at trading, I always get sidetracked by something. No more additions to my trading for the moment. In fact, I might do away with some stuff. I can't deny the potential usefulness of tick-charts though because they are pretty popular with futures traders.

Beginning value $100,000

End value $99,960

Lost $40

Quote:

Originally Posted by fast 

If the 15m chart is your setup chart, and if the 5m chart is your trigger chart, then yes, I'd say the 2m chart isn't going to be particularly helpful, but I'm not so sure that's what you mean.  Another interpretation is that the 15m chart is your confirmation chart while your setup and trigger is on the 5m chart--in which case (again), I don't think the 2m chart is going to be particularly helpful; however, if you're only using the 5m chart as your setup chart and the 15m chart as your confirmation chart, then I suppose you do need the 2m chart if that's what you're using for your trigger chart, but then again, that doesn't sound plausible since you said you're not scalping, so based on my analysis of what you said, I'm thinking what I originally thought, which is that the 2m chart isn't going to be pretty useful to you.  Am I right in thinking that you're looking for your setups and triggers on the 5m chart and looking to the 15m chart for confirmation?  

 

 

You hit it on the nail. I started watching the Slow Stochastics on the 15-min chart and, although I'd be lying if I said that it doesn't have its fair share of crossovers, it also often indicates a few big intraday moves with bullish signals just after lows of the day. I started using the 5 min chart as an entry/trigger chart because it can get me in the moves quicker than the 15 min chart. Perhaps that is just a sign of impatience and greed though... BTW I found the two minute chart is almost pure noise regarding indicators.

Recently I started questioning the validity of indicators in general though, so I am unsure what position, if any, alternative time frames will have in my trading regime in the future. A part of me questions the logical reasoning that an indicator alone will continually make money in a financial market. Maybe as people grow as traders they unconsciously make adjustments in their expectations based on the market that they attribute to the indicator? I don't know. I just can't force myself to follow certain kinds of trading setups. Like, I read one in A Beginner's Guide to Day Trading Online about waiting for bounces off of the 20MA with volume before entering futures trades. I tried to do that for a bit, but it just seems like a financial superstition rather than an educated, logical way to make money for a living.

The last few days of trading, I have focused more on price/volume and $TICK for confirmations of trend than indicators,  I replaced the 2-min chart with the 512 tick chart a few hours ago and it felt a lot more natural and productive too.

Thanks fast. I am using the tick chart as an entry chart on its own when I want to scalp a little, when I want to confirm trends, or when I want to find an optimal entry position. I try not to view it as a quicker-trigger 5-min chart, but rather an indicator to show whether smart money is part of the trend or not.

3/30/11

Thoughts

• The tick chart is faster than the 5-min chart but you still have to wait for confirmations in order to enter plays when you see patterns developing. If the confirmation is taking forever to occur, that is a sign in itself because the market should be going into a frenzy and the confirmation should come relatively quickly

• Make money

Trading

9:01 – Saw the market retrace to support on the tick-chart during the premarket session. Established a position when I saw the $TICK break higher and was stopped out in like two minutes. Phoooey.

9:14 – Entered long a play on a break above the Opening Range low. Fast-forward 10 minutes and had not gotten stopped out yet.

11:09 – Entered the play with the 15 min and the 5min showing bullish potential. Also, waited for the $TICK and the

2:01 – Have started implementing the SS as a signal to go long/short again. I need to remember to sit on my hands until the money is just sitting on the floor and all I have to do is walk over and pick it up. Get probability on your side as much as possible before you enter a trade, don't just trade for the sake of trade. Remember that you are trading to make money, you are not trading for excitement or to prove how smart you are. Safe that for other fields where your lifestyle is not on the line daily

2:30 – The market was retesting a previous high. I saw that the Slow Stochastics indicated that the market was not as strong on the second test. Further more, I saw a blow off top on $TICK. The ADVN was showing weakness as well.

2:36 – The tick-chart shows that at support heavy volume entered the fracas, signifying that the smart money might be scooping up shares and buying the dip. Liquidated position soon after for a $15 profit. I wanted to stay in longer but I don't trust the bearishness with the $TICK doing a complete 180.

Daily Analysis

• As usual, I did not document all of my trades, but I did use a great deal more patience towards the end of the day though. 1-2 $10-20 trades but some big money making plays as well early on. As a result, I approached trading later on in the day as if I was protecting a profit as opposed to chasing a profit and playing it too loose.

• I need to stop moving my stop forward so fast. If I am that unsure about the trade, I shouldn't be in it in the first place.

• Always make sure that you are entering a trade that has enough space to move +2pts before it encounters resistance

• I don't want to curse myself but I think I can find success scalping the open and the close but the tactics that it takes to get in and out of trades quickly during the first and last 30 mins feel like the opposite of the skillset I want to improve for the rest of the trading day. Scalping is about getting in and getting out before the position reverses I feel like. OTOH, for my day trading, I want to just sit on positions and let the market take me out when I am wrong instead of second guessing every position I enter

• A lot of volume came into the play at the end of the day #random

P/L Day:  + $155

P/L Total:  + $115

Total Profit as a % of total investment = +3%

Quote:

Originally Posted by fast 

 

You mention that you're using $TICK for confirmation of trend.  If you are using that as confirmation of trend, then it's not your primary trend indicator.  What is your primary trend indicator?

I am still getting a feel for everything so my opinion of what I am doing changes daily.

At the moment, I use the tick-chart or the 5 min chart to indicate the trend and potential reversal/continuation, but moreso the tick-chart because it gives me more data that I can work/create theories in a shorter timeframe. With the 5min chart, I have to wait for 5-min intervals to confirm hypotheses. If I want quicker info on a time chart, I have to go to a shorter timeframe and decrease the signal:noise ratio. With tick-charts it is a lot less noise because I can discern whether the price movement is worth betting on based on how long it takes for the ticks or the volume that is accompanied with the ticks.

If I see that the tick-chart is showing large market participants are getting involved near support/resistance, or a bunch of trades going on at a certain price level, that makes me contemplate a position. On the other hand, if I see a 5min chart with a candle retesting resistance on low volume or breaking through resistance on heavy volume, or divergences on an indicator, those things will encourage me to take a position as well.

To get probability on my side, I use $TICK because it often signal the reversal/continuation before the price action follows suit. For example, when an index builds up a head of steam and rallies to resistance but then throws out a gravestone doji on the $TICK attempted breakout, it is a very good indicator that the rally has lost its momentum and is about to come crashing down.

^^^^ Pure trend following. Simple yet effective.The fact that the indicator is lagging prevents you from prematurely entering positions often, I like the sound of that. I dont think I can trade off MA's alone but I can definitely work on implementing the patience that a lagging indicator must instill in you.

Hey fast, thanks for introducing me to the tick-charts. Hopefully I can open your mind to the power of the $TICK. I have to shout out to RileyR569, MC and also the blog posts by Brett Steenbarger for helping me understand/appreciate the $TICK or market internals in general.

The $TICK/Q tells you whether Nasdaq stocks as a whole tend to be traded at a higher or a lower price in the allocated time frame. For example if MSFT was trading at 33.02 and then in the next interval (3min for my charts) it is trading at 33.01, then it counts as one downtick for the TICK/Q.

$ADVN (or $DECN) on the other hand, gives you the amount of stocks that are up on the day. So if we continue to use MSFT as an example. If MSFT opened at 32.93, even if the price moved down from 33.02 -> 33.01, MSFT would still register as a Advancing issue because MSFT's current price (33.01) would still be higher than its opening price (32.92).

Now let me break down how I use $TICK/Q:

Note: I use the $TICK/Q and have found these measurements to be the best for the /NQ contract. You will have to use different price levels if you are looking at the Russels, Dow Jones or S&P e-mini contracts

It's a lot to take in a first but it is pretty simple to read after a while.

- On the chart, I have the thick white line for the zero-line. When the $TICK/Q hovers around here, the sentiment is neutral. From 9:45-10:45 notice that the $TICK/Q hovered around the zero line. If you look at the corresponding price action for the index on the subgraph, you can see that the NDX simply consolidated and chopped sideways for that whole hour.

- The second lines I have on the chart are for the +200 uptick and -200 downtick level. Personally, I find the +/-200 level to be consolidation territory for the indexes or an area that telegraphs move with little strength behind them. However, you can still make observations from this area. For example, from the open until the 9:45 session, look how easily the candlesticks broke below the -200 downtick area, yet how hard it was for a +200 uptick to be registered when the market attempted to bounce off support (see price action on subgraph). This is a tell that perhaps there is bearish momentum bubbling underneath the tame price action.

- The third (dotted) line shows some real sentiment: +400 and -400. This is when the market starts picking up steam. Notice how the 11am selling encroaches the -400 downtick level and stays in the area for around 8 three-min bars.

- The fourth line is when the trend is nearing extremes and a reversal is potentially around the corner at +/-600 on the $TICK/Q . Note how the -600 acts as almost a resistance level for the $TICK/Q. Once it gets touched, the $TICK/Q shoots back higher. Creates good potential entry levels for contrarian traders.

One thing to note is that the characteristics of the lines actually alternate depending on the market's trend. For example, the -600 level acted as resistance on this day, but on a really bullish day, the -200 downtick can have the exact same role. It depends on the trend for the day and in the recent past in general.

Reversals

- I spoke about this earlier, but I want to go into a little more depth with the visual pic I have above. One type was mentioned earlier, where the $TICK/Q reading reaches extreme levels and reverses promptly

- Another type of reversal pertains to the candlesticks more than the actual tick reading. Early in the morning, note the blow off tops at 9:15 and 9:54. The long upper shadow shows that the bulls were hitting the buy button and $TICK/Q ran higher but then the bears jumped in after the bulls were exhausted and pushed the $TICK/Q back down. As I said early, this is a higher probability sign of a pending reversal. If you look at the price of the NDX at 9:15 and 9:54 on the NDX subgraph, you can clearly see that these were two separate highs before the ensuing sell-off.

More when I learn it.