Investing & Day Trading Education:  Day Trading Academy

Master Trader Dec 12th Recap: 4 trades, 4+ points, 40 minutes

It is a contract roll-over Thursday once again… time flies when one is having fun :-).

Being a market “Hitman” is in no small part about timing and ruthlessness of execution, but the volatility this fall has been somewhat disappointing.

That is why, yesterday’s movement got me almost as excited as my coming trip to Colombia!

Having said that, however, I was facing the dilemma of trading a contract roll-over day or missing out on some good follow-through movement. Tricky situation, I had to make sure I approached the market with an open mind and a ton of focus.


I opened the charts just around 9:30 Eastern Time and my first order of business was to check the volume on both the old (ES 12-13) and the new (ES 03-14) contracts. I was not thrilled with what I saw, but I was not surprised either: volume was somewhat low and the old contract still traded heavier than the new one.

Looking at the movement did not boost my enthusiasm either: the market was still moving sideways, consolidating the massive move down from yesterday. However, two details about the structure caught my interest. First, there were some strong attempts to move both higher and lower from the 5-point channel (FOBO to the downside suggested the sellers did not quite have the ball again just yet). Second, the overnight high coincided with the 23.6% re-tracement of the entire macro move down from Tuesday’s overnight high. The first observation suggested that this market would not be boring, while the second one suggested that the sellers are just waiting for their own time to hit the bids in force again. Time to get busy and start drawing…

Right before the open I could already tell the current bias within the sideways channel was to the upside: higher lows supported by a trend-line and a massive run up (from the support in a straight line to the resistance shortly after the 8:30 AM news). The market, however, was not respecting our MB area as consistently as a trending market does, so I was automatically looking for the logic that was actually defining the turning points where buyers and sellers were yielding control of the market – it had to be the “wedge” forming between the up-sloping trend-line and the resistance area around 1783. My hypothesis was in place, so it is time to zoom in and look for my queue from the price to pull the trigger…

My reckless-trading days are behind me, but I am a Congressive trader now and that means that if the market requires it, I will be aggressive. Two failures to launch down from the MB at the open… same structure as the previous time the sellers were trying to move the market lower from the MB area… and all that without a lower low, at my confirmed trend-line?! The strong peak-reversal bar was just icing on my pro-trade set-up… I want in!

What?! No fill at the close of my reversal bar… this does not happen often at all, but it happened today! I am not chasing the market as a rule and I even decided to pass on the pro trade the market offered a few ticks higher than my initial entry point… Is it possible that I am not aggressive enough?! I actually called and missed the move up to the resistance area! I hope I am not disappointing my fans :_).

“Adapt and conquer” rang the words of Dr. Z in my head and I moved for a Manual Entry at the edge on the pull-back – a tick higher than where the buyers drew a line in the sand for the B-trade.

I was in my first trade for the day at 9:40. I did expect a bit more of a move up into the area, but a peak-reversal bar on the re-test of a confirmed area is enough of a reason to take the point of profit… it did move up for another point, but I don’t even remember anymore how to feel regret about missing out on profit when I took the right decision.

All I could focus on was the price’s next reaction from the resistance area…

And what a reaction that was: I could not even get a fill for the obvious short a few ticks away from the MB. Well, that’s a second time today, but I am still not chasing price! And now it is breaking down beyond my trend-line…

“You just give me a pull-back, though, ANY pullback”.

I opened my scope (i.e. the 233 chart) and waited for that chance. There it is, the order is dropped manually in to the market, and the fill is perfect a tick from the edge… I guess I just needed to adapt to what the market schooled me for twice within the last 20 minutes.

Now that I am on the right side of this momentum, I am giving it a chance to extend a bit further.

The logical place was the OB, coinciding with the last low at this area and the 61% extension from the original pop down off of 1783. A bit of a shake out for some of the hesitant sellers is nothing I ever worry about – we scoff at reactive, myopic profit taking around here :_) ! Two points in less than 2 minutes on this one with perfect execution – I simply love what I do for a living nowadays…

The market clustered at this already strong support area and I was not even interested in the pullback after what I had already seen around 1778. A good pop off of the retested support with a higher high, change in direction, and a quick pullback though… this is where I want in to the upside!

This one promised a lot, but delivered no follow-through in terms of strength and I did not hesitate to pull the plug on it. After all, if a set-up does not resolve in the manner you expect it to, then you are probably working with a different hypothesis compared to the market. Learning how to keep a flexible opinion and how to execute fast when the probability changes is a skill, and not an easy one to master…

A quick and decisive change of heart from the market confirmed my suspicion and I automatically switched to exploring my alternative hypothesis: this strong move down might not be targeting just the support around 1778, but maybe it is the attempt to continue the macro move down that started yesterday. So the question was where is the next logical target to the downside.

How about the 100% Fibonacci extension of the original pop down from the resistance?

Oh, it lines up with the overnight low? Perfect. I was already into my position and my entire focus was devoted to how the market will react into that strong support area. I few bars later I had my continuation and it was “crunch time” at the STRONG SUPPORT AREA. A strong reversal bar and a couple more of hesitation and I decided I am not risking my profit in this trade to see what is about to happen (+1 pt). I recognized the lower highs in the immediate strength and I knew it would probably give me my extended target, which I initially anticipated, but it was a risk I was not willing to take on a contract roll-over day. The break-out came in about 60 seconds after I took the profit and the market moved promptly to my initial target @ 3.50 points… A good decision, just not a great one in retrospect…

An ever-changing environment that is fundamentally uncertain and at the same time offers unlimited opportunities for profit (or loss) is an alien and challenging world for our brains to survive in, let alone thrive in. You all know the statistics of success in this occupation and I bet your own experiences have included at times a range of negative emotional feedback from the process of trading (including but not limited to confusion, anger, panic, frustration, and desperation). I have been through the loop and I am intimately familiar with the entire gamut of feedback from the process of interacting with the markets. What I have learned the hard way is that doing this successfully requires a new set of skills and a counter-intuitive mentality to the one that comes natural to the layman. But to acquire these, the layman needs no small dose of patience, humility, perseverance, and motivation, as well as a hefty amount of time and quality coaching. These qualities, however, are rarely encountered as the “complete package” within a single individual…

That is why I am heading down to Colombia to meet some of the traders Marcello found promising candidates and to offer them an opportunity to pick my brain. Well, that and all the other benefits that Colombia has to offer, including but not limited to: great weather, quality coffee, and exotic women :_).

Catch you next week in class, LIVE from Medellin, Colombia!

Nikolai a.k.a. “The Hitman”