How did everyone do with my inspirational message for 2008? I still think it’s one of the most important things to understand about trading. Maybe do yourself a favor and read it again.

As we move into 2009, I want to put out this message:

You are dancing with the markets, and it is leading.

Some of you have no doubt stopped reading by now, possibly even hailing this as my “gayest post ever.” What can I say? I took dance lessons this year. :-)

Anyway… This year—more than most, I’d bet—everyone will continue to frantically call the bottom or warn of further downside. Everyone thinks they know where the market will go, but remember that most people are going to lose money… so how much faith do you want to put in these opinions?

Then again, how much faith do you want to put in your own opinions, for the same reason?

People say the ultimate point of martial arts is that you learn to fight so that you have the power to not fight. In certain spiritual traditions, you learn to harness and control your inner world so that you have the power to just let things be. In some way—which I don’t pretend to understand—, learning how to exert control frees you from the need to do so. So, I say we learn technical analysis so that, ultimately, we no longer have the need to “figure out” the charts. We can then flow with the markets. Our moves become coordinated and stress-free. The markets can become our dance partner.

People use so many useless and irrational practices in their trading. They pick stops and targets based on their entry points. They try to hold on for break-even when they are underwater. This is all trade-centric thinking! It’s thinking relative to your trade, which is insignificant. Your entry price may be a precious snowflake to you, but the market doesn’t know or care. Logically you all know this, and yet when a trade is on, most of you focus entirely on the market relative to your entry price. Give that up! You are dancing with the market. And when you dance with the market, it always leads.

Think about it!

To dance well, you pay attention to where the lead is leading. When the leading dance partner starts to turn right, you can either turn right, or get your foot stomped. It can be stress-free and fluid, or a painful jerky mess. Which will you choose? Recently on twitter, I said: “Always ask yourself: ‘what is the market trying to tell me?’ When you get an answer, never ignore it.” That’s what I was getting at.

Your goal is not to be right. Your goal is to make money. Or at least it should be. So, get away from yourself and your trade (which adds up to your ego) as you make decisions. Instead, recognize your place. Focus on the markets, and stop trying to tell them where to go. Look for the clues that it is moving forward, moving backward, or just spinning in a circle. And there are clues, if you are dispassionate enough to see them.

Protect your capital and survive to see my inspirational message for 2010. I’ll try to make next year’s analogy more manly.

People are constantly asking me how I set up my screens, so I thought for my last post of the year, I’d share my most recent screens with you. I have two overview screens, and one trading screen.

Overview screen #1:

We have 2 perspectives on ES here. I generally run very few indicators on these overview charts, because I want to feel out the overall price action. We also have a time and sales window filtered to see the larger trades. In the middle are some convenient quotes… mostly I watch the TICKs and the TRIN here.

Overview screen #2:

Reference charts other than ES go here. I change what goes up here a lot… right now I like the dow, the nyse composite, and the S&P100. No nasdaq or small-caps represented here, maybe I’ll address that sometime. Anyway, I also have a candle chart of the TRIN here, so I can glance at whether it seems to be going up or down. Usually I know this by the quote window on screen #1, but if I get distracted, this chart reminds me.

Trading Screen:

This is the screen where I select and manage my trades. When the overview charts tell me I am ready to trade, this screen is the only one that matters.

I change this screen constantly, in terms of the type of chart, and the set of indicators used. This shot just shows how I had it set up today. Yes, if you are keeping score, there are a few experimental things shown here. Some may make it to eotpro one day, if they turn out to be useful. Others will fall away, never to be seen again.

My main entry criteria lately has been fresh everypush red or green bars which coincide with strong hooks in the stochastic. Volume pressure needs to be on the right side of 0, of course.

I’m already wincing in anticipation of all the people who will blindly try to copy my screens, as if they are some kind of profit-magnet. Some people won’t even want to do the work to set up the screens, and will ask me for workspace files from my platforms. The bottom line is, I have learned to do what’s best for Richard, and Joe Blogreader needs to figure out what’s best for Joe Blogreader. Marty Schwartz said it well in his book, Pit Bull:

“Feel free to use my tools, but don’t think that you can just pick them up and start making money. To make yourself into a skilled craftsman, you’ll have to find the tools that feel right to you, and use them over and over until you learn how they work, what they can do, and how to get the most out of them.”

As many of you know, I love point and figure charts. I thought I’d briefly share one of the basic PnF patterns… the triple top/triple bottom breakout. What’s nice about this pattern is that it’s easy to spot, and you have a profit target that’s somewhat reliable.

Basically, you are looking for at least 2 runs that reverse at the same price level… then on the 3rd run, it breaks that level and keeps going. To determine the target, just look at the largest adverse move inside the pattern. Expect price to go at least that far once it breaks out. That’s all there is to it!

Here’s an example… I’ve drawn in the horizontal breakout level, and since this pattern also happens to be an ascending triangle I’ve drawn in the diagonal line, too.

Now here’s a larger PnF chart with lots of examples marked. The breakout lines are blue and horizontal. The reference distance is blue and vertical. The projected breakout distance is magenta and vertical. You can see that in most cases, price went as far as the projection, or a little farther. There is one failure, where price stopped at only about 1/2 of the projected distance. Not bad!

Here is the link to our latest eotpro webinar.

http://eotpro.acrobat.com/p69113014/

As the year comes to a close, I am really swamped with work I need to finish for some strategy-trading clients, and I am really going to try hard to get an eotpro live set of indicators written for eSignal by early January. Not to mention, all the standard social holiday activity, and the resulting hangovers. So, posting to the website may get a bit spotty until next year.

By the way, I wanted to mention how impressed I was with Apex Futures, who gave a presentation in our live room yesterday. They are offering eotpro clients discounted $4.25 round-trip commissions on ES, which made me smile. It definitely made them stand out, among the brokers we’ve partnered with so far.

I love these emails! This is one of the best ones I’ve read in a while, because it shows that this trader is studying combinations of indicators and doing the needed research. For AJ, it’s paying off!

Richard,

I have been playing around in SIM when Every Push is one bar ahead of when G Cycle plots the win rate is off the chart. This is even more magnified when Every Push bar is above the KAMA either long or short and G Cycle plots next. I might have you do this one for me in automation first buy want to toy around with it for a little longer to extract some longer term results. Thanks for your hard work on these puppies!!!

Thanks,
AJ

Today’s my day off… but I wanted to point out to people this 5-minute chart:

We keep one up in the room at all times for reference. Anyway, check out how the big traders started accumulating contracts well ahead of the FOMC policy statement! There was no doubt that the pop would be to the upside.

Nice!

On Friday a reader asked for PowerShares QQQ (Nasdaq: QQQQ) in the blog comments. I told him I was travelling, but would show Friday’s Q’s today. So, today, you get the last two days of QQQQ. Let’s see:

Well, Friday it was buy, buy, buy… and how you did would depend on your money management. If you trail the plot cycles, then you held long all day. If you are more of an in-and-out quick kinda trader, then you scored on the first trade, lost on the second trade, and scratched the third trade. A pretty so-so day. The last buy signal of the day was on a candle marked 15:59.46… and if you went long in the last 16 market seconds, you closed at EOD for break/even. But please don’t take a trade that close to the end of day!

In today’s action, the simple stock system basically said to get short near the open for a nice ride down. Then it stepped aside for the rest of the day. Since it was much more choppy after that, I think that was a good choice!

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Those stocktwits seem to have a one-track mind. I was excited to see a new ticker at the top of their discussion list, because that’s how I pick the stock I feature in a totally unbiased way. For a long time they’ve been sticking with SKF, so I thought FAZ would be a nice change… but it’s just another freaking inverse finance ETF… only with more leverage. Oh well…

The simple stock system, made up of just a few eotpro indicators, picked a single entry on Financial Bear 3X (NYSE: FAZ), and not a bad one at all:

It did pull back on you before running, but even with the tightest of stops you’d still be fine, as it didn’t even penetrate the low of the entry candle. A pretty smooth ride up after that. Sweet!

Incidentally, there is a table of volume bar settings that I use for these. I take the 30-day avg volume, and use the overview settings for all these stock charts. If you don’t want to bother looking it up, all you have to do is take the 30-day avg volume, divide it by 100, and pick the next highest fib number. Let’s take today’s stock as an example. FAZ is so new it hasn’t even been trading 30 days, so I just looked at the last couple days of volume… about 3 million shares or so. 3,000,000 / 100 = 30,000. So, I went with the next highest fib number of 46,368 share bars. Couldn’t be easier!

The indicator picks the entries mechanically, and I use the same settings on all stocks, and I always show you the whole day on the featured stock. So, no funny-business or cherry-picking. Just sweet, sweet profits.

Stocks Mentioned In This Article
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This is just a quick, totally discretionary, trade at the final seconds of the market today. I think it’s hilarious that, if you look, the market went up to exactly where I thought it would when I set my initial target. I just got antsy because there were only a few seconds left in the session. So, I grabbed a point. Was I too hasty? Would you have done better? Maybe so.

We had fun chatting with the people who attended our eotpro open house today. We are having ANOTHER open house tomorrow (Thursday, December 11th 2008), so come on in and check us out if you haven’t done so before. I know there will always be “if you can make money why do you sell stuff” skeptics out there… I just ask them to check us out as a guest before being too close-minded about it. Most people who hang out with us decide that they want to stay…

Today, our room moderator made $1250 trading the ES futures live on-screen, while answering user questions and DJ’ing some music. Fantastic!

Recently, I was sent a copy of Stock Trader’s Almanac 2009 for review. Honestly, I didn’t know what to expect when I opened it. I’d heard of these books before, but had never flipped through one. Probably the word `Almanac’ turns me off. Makes me think of farmers (sorry, farmers) and lists of world capitals. In the end, though, I thought the material was pretty interesting.

So what does one find in a stock trading almanac? Primarily, you get a combination of a market-centric calendar and a whole lot of market statistics. Let’s look at each section in turn.

Calendar

The calendar is arranged like an appointment book, with enough whitespace on each page to write some notes. This won’t be your trade log if you are an active day-trader, but I could see it used either to jot interesting occurences or key market levels. Things like that. You could track your end-of-day performance there.

Provided for you on each day are the percentage of days that the Dow, Nasdaq, and S&P closed positive over the last 20 years. If that’s not enough history, in the back of the book they give a table covering 1953 through 2007! Also noted are options expiration days (with fun little witch icons telling you how much ‘witching’ is going on), market holidays, and other market-relevant events. For instance, it notes that June 30th is the last day of Q2, and tends to be bearish for the Dow but bullish for the nasdaq.

Statistics

Interspersed throughout the almanac are a number of pages of relevant statistical and seasonal data. I was especially interested in the information about how markets tend to react to new United States Presidents, since I haven’t traded through an election before. Other examples include:

• Down Januarys: A Remarkable Record
• Take Advantage of Down Friday/Down Monday Warning
• Sector Seasonality: Selected Percentage Plays
• Market Behavior 3 Days Before and 3 Days After Holidays

Then, in the back of the book, is the “Directory of Trading Patterns and Databank.” Basically, this is yet more topics that didn’t fit into the calendar section. You get market trends broken down by day of the week, by half-hour intervals, by decennial cycle, etc. You alse get various historic landmarks like the 10 worst weeks in the markets by percent and point. Although a lot of the back section is comprised of tables of numbers, I found myself having fun flipping through it and exploring what it had to offer.

Strategy and Planning

In the back of the book is a planning and records-keeping section. It has spots for you to record your trades and indicator data, etc. I honestly didn’t look too closely at this section, because I keep my records electronically, and I recommend that you do so as well.

Summary

The Stock Trader’s Almanac 2009 is not essential for daytraders, but I found it to be a well-executed product that I had genuine fun exploring. I’m looking right now at the monthly closing prices in the S&P 500 since 1950, and from that vantage point, I’ve got to say that our current downtrend doesn’t look so bad. I mean, we’ve come a long way since Jan 1950’s close of 17.05! Or 96.12 on the eve of my birthday. Or 533.40 when I graduated High School. Or 1469.25 when I graduated from college.

Uh… scratch that last one….

So check it out! (And if you can’t afford it, get long some S&P’s on January 5th… they’ve closed up 74.5% of the years since 1953 on that day!)

Hi everybody. As this video explains, people have asked me so often for renko bars on Tradestation and Multicharts that I finally gave in and made a little indicator for it. You can’t apply indicators to the resulting chart, which is why I almost always turn down these requests for exotic bar types. But, I figured that wasn’t as big a deal with renko in particular, because you are usually just looking for levels to break. And, they are just cool!

I have decided to give this indicator away to people who visit our eotpro live room. We’re having an open house Dec 10th and Dec 11th, 2008. So, if you want to come in and check us out, watch our moderator trade the e-minis, and generally just have some fun, please do! While you are there, let me know you want the renko indicator, and I’ll send it to you. You might want to be quick, though, because last time we had an open house the room reached capacity and 47 people couldn’t get in. We’re working on expanding the live room capacity.

Today I’m featuring Potash Corp. of Saskatchewan, Inc. (NYSE: POT), which was the #2 most-discussed stock on stocktwits. As you might guess, #1 was SKF, and I just refuse to feature SKF again so soon. They’re just going to have to make more varied selections.

Three long entries, all of which look pretty good. The second one pulled back on you, and I wouldn’t be ashamed to cut that trade off after a while. No matter what, it was a decent set of picks.

On Daily Charts, Too!

By the way… the every push entry signal has been adjusted so that it works on daily charts now, too. Here are the last few months of POT:

Some nice short entries, no? This is my first try at adapting it. As I look at more daily charts, I may make some adjustments. I firmly believe that in the markets, a chart is a chart, though, so I don’t see why everypush entries can’t work well for swing trading, too.

Stocks Mentioned In This Article
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Finally, the stocktwits discussed a stock more than SKF. Sadly, they chose General Motors Corporation (NYSE: GM), which spent most of its day in a tight range. If I ever finish my article on daytrading stocks, one part of it will describe the fact that you want to trade a market thats moving. Oh well, the simple stock system still handled it well, which is nice:

I want to point out the end-of-trend indicator in the second-to-last subgraph. In particular, look at when the thick blue line comes up toward the top and turns magenta. This marks the area where you want to be careful, and potentially take your profits. Look at how it pegs all three big moves of the day!

Here are the trades:

1. We have a long trade which reverses up at 4.50ish rather quick, but you’d know better than to let this winner turn into a loss, because end-of-trend is warning you. Fantastic!
2. Then, we have a nice short trade. Again, end-of-trend helps you pick a great place to scale out.
3. Then, we get stuck in a sideways range… and the system repeatedly tells you you want to be long. See the volume pressure staying to the upside, which also helps you to hold on. If you eventually sold this for break-even, or even a small loss, I wouldn’t blame you. But, if you held on, eventually you got the predicted pop up, and end-of-trend tells you when to aggressively protect your profits.
4. Finally, we get short toward the end of the day, but the stock just sits there. You’d close at end of day for b/e, give-or-take.

So I guess I got my wish, and got to profile a stock. Too bad it was today, since it looks like freaking SKF trended down smoothly all day! Still, I am pleased with what the system did with this mess. When I first pulled up the chart, I admit I wondered if I would get chopped up. Turns out, the system was ok!

Please note that if you only traded on the right side of Alla’s Average (the dashed yellow average on price action), you’d just have the big short trade, and the flat short trade. In my own personal trading, I rarely fight Alla’s Average, but I wanted the demo system to have as many trades as possible (readers like action!) and it seems to still do ok.

Stocks Mentioned In This Article
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GM	| |

Darn… I noticed after making my SKF post that reader Quentin had asked for a little TNA in his blog comment. At first I thought, “great, finally a stock!” But then I realized it was just a new ETF I’d never heard of: SMALL CAP BULL 3X (NYSE: TNA).

So, there is no 30 day average volume, because the thing hasn’t traded 30 days yet. But, I eyeballed about 5 million shares traded the last few days, which according to my normal standards means I’d use a 75025 share bar chart on this bad boy. So, I did.

And there was only one trade called for today, in the closing minutes. End-of-Trend was up for most of the day on this stock, causing the simple system to step aside. So, I featured today and yesterday for you, so you’d at least see some trading action:

So, yesterday, a nice win, a nice win, then a pretty iffy one… we’ll call it a small loss… then a tiny gain into the close. Then today, a tiny win into the close.

The beautiful thing about stocks is that if nothing is happening on one, you’ve got 9000+ other choices in the american exchanges alone. Like for instance, you could clean up on SKF while waiting for TNA to do something :-)

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TNA	| |