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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Scalper buys and sells are especially useful for traders who like to try to buy bottoms or short topsSUMMING UP THE SCALPER BUYS AND SELLS Scalper buys and sells are especially useful for traders who like to try to buy bottoms or short tops. While it is foolish to short a market just because its too high or buy a market because its too low, its fine to short that high flyer or buy that all-out loser once you get a reversal confirmation with this signal. It doesn't mean that the dead highs or the dead lows are in place, but it does mean that there has been a temporary shift in power, and it is a valid signal to siep in and establish a position. Whether this is an iniraday reversal on a five-minute chart, or a total market reversal off a daily chart, the concept is exactly the same. In addition, this play is based on pure price action, and I appreciate its simple and effective nature. INCREASE PROBABILITIES OF SUCCESS THROUGH MULTI-SETUP COMBINATIONS One theme that a trader will find in my setups is that they all work well together. 1 particularly like to combine the pivots with the scalper buys and sells on a 233-tick chart for the ES and a 144-tick chart for the YM. On days when I'm not sure what the market is going to do, I can wait for a scalper confirmation against a pivot level, as this is a trade that has a very high probability of success. Even better, I will get into a pivot trade, and shortly thereafter I get a scalper confirmation in the direction of the trade. I can also use the scalper sell reversal to get out of my long pivot trade. 1 talk about this more in the chapter on developing a business plan, but the idea is to find what makes sense to you and your personality and mix and match accordingly. TICK FADES: TAKING THE OPPOSITE SIDE OF THE IMEWBIES THE NUMBER ONE ACTION ALERT AVAILABLE TODAY The markets spend the majority of their time backing and filling. That is, they drift up to a resistance level, then turn around and drift back to a level of support, not really doing much of anything. For most of this time, there isn't much for a trader to do except wait, and that usually involves extreme patience. Many traders fail in this regard. After all, they are traders, right? They should be taking a trade or managing a trade, not just sitting around doing nothing. This is and will always be one of the biggest misconceptions about tradingthe thought that a trader has to be in a irade nearly every minute or every hour of the day. In reality, there are always three positions traders can be in at any given lime. They can be long, short, or flat. Being flat, meaning not having any trades on, is the best course of action 60 percent of the time. Cats don't chase the first bird they see. They crouch and wait, sometimes for hours, for the right time to pounce. And so it should be for the active trader. When something interesting actually does happen* such as a buy or sell program hitting the markets, this creates a great scalping opportunity for the alert trader. The key for traders is to be patient, sit on their hands, and wait for these moments to occur There is no easier way to do this than watching the ticks, or, 1 should say, listening for the ticks. When the ticks gel over +1000 or -1000, this represents extreme buying or selling, and at this stage of the move most of the bullets have already been fired. Many amateur traders get caught up in the froth and excitement, get scared that they are missing out on a big move, and jump onboard in the direction of the movejust as it is starting to peter out. These are the bag holders that will get shaken out on the reversal. Rather than join in on the move, 1 like to wait until an extreme tick reading is registered and then fade the move. Earlier 1 mentioned that 1 liked to listen for the ticks. By this I mean that I set up audio signals to alert me when these levels are hit. This way 1 don't have to stare at the charts and potentially miss a move if I1 m not paying attention. I can be down the hall, hear the alert, and know exactly what is going on. Getting down to specifics, whenever I see or hear readings of over +1000 or -1000 ticks, 1 fade the move by placing a market order. If we get a +1000 tick reading and I am flat, I short the move at the market. If I am already long based on another signal, I start exiting that move and initiating a short position. The reverse is also true. If the markets are selling off and traders are jumping in on the move down to the point where a tick reading of-1000 is registered, [ want to step in and buy. There isn't any cleaner way to get on the opposite side of amateur traders chasing the market. I've been shown a couple of different renditions of this setup by other traders. The ticks have been around for a long time, and many people who have been doing this for decades have a portion of their trading tied into the ticks. TRADING RULES FOR SELL FADES (BUYS ARE REVERSED) 1. I have studied three different setups that I have learned from other traders and have modified them to lit my own trading plan and style. Let's look at the parame ters I use for this extreme emotion play. I take trades only between 10:00 a.m. to 3:30 p.m. Eastern. A lot of sporadic action can happen during the first and last half hour of trading, I like to let the markets settle in before taking trades. 2. I play tick fades in two markets, the E-mini S&Ps (ES) and the mini-sized Dow (YM). These can also be played in the SPY, DIA E-mini-Russell, E-mini Nasdaq, and any stocks that are mirroring the action of these indexes. 3* When the ticks reach +1000, I short at the market. I like to set audio alerts for +1000 and -1000 readings. That way I don't have to stare at the chart. If the ticks get to +988 and fall back, I don't take the trade because I won't hear my audio alert. This keeps the setup clean and very specific, and not subject to trader interpretation. 4. For the YM I use a 30-point stop and a 20-point target. I also set a time limit on this trade of 35 minutes. If my stop or target isn't hit within the 35-minute time span, then I exit my position at the market. I like to use a timer with a beep so I'm aware of when the 35-minute time limit has passed. Most traders have very little sense of time when they're in a trade. 5. For the ES I use a ihree-point stop and a two-point target, as well as the same time limit. 6. If I am stopped out twice in a row on this trade, I am done with tick fades for the day. By stopped out 1 mean if my physical hard stop is hit, as opposed to the time stop. 7.If by 12:00 noon Eastern the ticks have spent over 85 percent of their time above zero, 1 will pass on all other tick plays for the day. This shows an extreme level of buying in the market, indicating lhat funds are accumulating stocks. These power days are rare, but they do happen about once every four to six weeks. They are accompanied by many extreme tick readings above 1000, typically between 1200 to 1400 ticks. In addition, if it is past 10:00 a.m. Eastern and the ticks have all been one-sided, for example, all positive on the day, I will wait until the ticks have spent some time in negative territory before setting up the first tick fade play. SPECIFIC EXAMPLES OF TICK FADE SETUPS Mini-Sized DowSeptember 2004 Contract, September 1,2004 1* Shortly after 10:00 am. Eastern on September 1,2004, the ticks move up through + 1000 (see Fig. 9.1). I short the mini-sized Dow at the market and am filled at 10192.1 place a stop at 10222 and a target at 10172.1 also set my timer for 35 minutes. 2* The markets drift lower, but after 35 minutes neither my target nor my stop is hit, so I exit at the market. I am filled at 10162 for 4-10 points. 3. The ticks hit +1000 again ai point 3, and I short at the market. I am filled at 10194.1 place a 30-point stop and a 20-point target. 4. The markets roll over, and my target is hit 20 minutes later at 10174 for+20 points or the trade. 5. The markets sell off hard, and the ticks get down to -1O00,1 buy at the market and am filled at 10118. I place a stop at 10088, 30 points below. I place a target at 10138, 20 points above my entry. 6. My target is hit within eight minutes* and 1 am out for +20 points. 7. The ticks reverse and quickly hit +1000, and I short at the market. I am filled at 10168. 8. The markets roll over quickly, and I am out at 10148 for +20 points. 9. The ticks hit +1000, but it is 3;5O p.m. Eastern, so I don't take the trade. Remember, according to my trading rules, I don't take any new tick fade trades after 3:30 p.m. Eastern. 1. On September 10, 2004, the ticks hit +1000 shortly after 10:00 a.m. Eastern (see Fig. 9.2). I short at the market and am filled at 10252.1 place a 30-point stop and a 20-point target from my entry level, and I set my timer. 2. Thirty-five minutes pass, and my timer goes oft so 1 exit at the market and am out at 10257, a loss of-5 points. 3. The ticks ramp up again and hit +1000, so I short at the market and am filled at 10262. 4. Time flies when you arc having fun. My timer goes off after 35 minutes, and I exit at the market. I'm out at 10252 for a gain of +10 points, 5. The ticks head north of +1000 in the middle of the day. The only reason I'm aware of this is that my audio alert goes off. At the time, I was on the phone. I drop it and run over to the computer, short at the market, and am filled at 10264. 1 set my parameters, set my timer, and go back to my phone call. 6. I hear my timer go off again, and I come back to my computer to see 1 am still in the trade (that is, my stop or my target has not been hit), and I exit at the market. 1 gel oui at 10255 for +9 points. 1 don't try to finesse these timer exitsI just gel oul. 7. The ticks push past +1000, and 1 short at the market. I'm in at 10257.1 place my stop and place my target, 8. The ticks continue to push higher, and the market rallies. My hard stop is hit for a loss of -30 points. Mini-Sized DowSeptember 2004 Contract, September 9, 2004 1. Around noon on September 9,2004. the ticks hit +1000, and I short at the market (see Fig. 9.3). I am filled at 10283.1 place my stop and my target, and I set the timer. 2. Thirty-five minutes pass, and I exit at the market at 10272 for a gain of +11 points. 3. The ticks push up again past +1000, and I short at the market. 1 get in at 10306, and place my parameters. 4. The market drifts down, and after 25 minutes my target is hit at 10386 and I am out for +20 points. 5. The ticks pop up again, and I short at the market. I am in at 10297. 6. Fifteen minutes later my target is hit at 10277, and I am out for +20 points. 7,The markeis shoot higher on ticks of + 1000, and I short at the market. I'm filled at 10308. 8.The markets roll over, and my target of 10288 is hit for a gain of +20 points. In the end, this beats working for a living. Mini-Sized DowSeptember 2004 Contract September 8, 2004 1. On September 8, 2004, the ticks register a +1000 reading shortly after 10:00 a.m. Eastern, and 1 short the YM at the market, getting filled at 10355 (see Fig, 9.4), I place my stops and targets and kick back. Once I get into these trades, there is nothing to do but wait. 2. The market rolls over quickly, and my target at 10335 is hit in 10 minutes for +20 points, 3. About 40 minutes later the ticks act up again, and I short at the market, getting in at 10337. 4 The markets go into chop mode, and 35 minutes later my timer goes off and I exit at the market, getting a fill at 10335 for a whopping +2 points. 5. A few hours later the ticks start getting jiggy with it, and 1 short and get filled at 10346. 6. About 15 minutes later my target is hit at 10226, and I'm out for +20 points. 7. The ticks ramp up again, but I pass on this trade because it is now past 3:30 p.m. Eastern. The trade would have worked out at a +20 point trade, but I have found that tick plays in the last half hour tend to be less reliable. Mini-Sized DowSeptember 2004 Contract July 26, 2004 1. On July 26, 2004, the market action starts off weak, but there aren't any extreme tick readings until just after 11:00 a.m. Eastern (see Fig. 9.5). At this time I get a -1000 tick reading, and I buy the YM at the market, getting a fill at 9912,1 place my orders for my slop and target, and I set my timer. 2. After about 30 minutes into the trade, the market firms, and 1 get out at my target of 9932 for +20 points. 3. The market is quiet for most of the day, and then as it approaches 3:00 p.m. Eastern, we get a+1000 tick reading. I short at the market and get filled at 9932. 4. About 20 minutes later my target is hit at 9912, and 1 am out for +20 points. 5. There is another extreme reading in the markets, but it is past 3:30 p.m. Eastern, so 1 sit on my hands and do nothing. 1. On September 7, 2004.1 get an early +1000 tick reading (see Fig. 9.6). I'm watching the E-mini S&Ps, and I'm tempted to short, but I look at the time and it is near 9:50 a.m. Eastern. This is before my parameter of 10:00 a.m. Eastern, and I pass on the trade- Although this trade would have worked out in my favor, I have found that tick trades in the first 30 minutes of trade are haphazard at best, 2. I wait for the next setup, and it hits the tape near 11:30 a.m. Eastern with a +1000 lick reading- [ place an order to short the E-mini S&Ps ai the market, and I get a fill at 1119.75.1 place a three-point stop at 1122.75, and I place a target at 1117.75. Of course, I also set my timer to buzz me when 35 minutes elapse. 3. Thirty five minutes pass by rather quickly, and the only thing interesting that has happened is that my two-foot long arrowana (a tropical fish from the Amazon that looks like a Tarpon) tried to jump out of its tank, causing me to jump like I'd been hit with a cattle prod. Regardless of this distraction, I hear my alarm go off, and since neither my target nor my stop has been hit, I execute an order to get out of my position at the market. I am out at 1121.25 for a loss of -1.50 points 4. Soon thereafter an episode of ticks gone wild hits the tape, and they move back up to +1000.1 short at the market and am filled at 1122,00. I place my stop and target and set my timer 5. My timer goes off while I'm enjoying a smoked turkey breast sandwich from Panera Bread Company. I exit at the market at 1121.50 for -0.50 points. 6- The markets pop higher on a +1000 tick reading, and I short at the market. I'm filled at 1123.50. I set my parameters, kick my feet up, and watch the action. 7* Thirty-five minutes pass by swiftly, and at the sound of my buzzer I execute an order to cover at the market. I'm out at 1123.50 for a scratch trade. 8. The ticks hit +1000 again, and I short at the market. I am filled at 1124.75. 9. This time the markets roll over, and my target is hit at 1122.75 for +2.00 ES points. 10. As we move into the last hour, the ticks dare to hit +1000 yet again. I short at the market and am filled at 1119.75. 11. The market rolls over, and I am out at my target at 1117.75 for +2.00 points. 10. 1,On September 3r 2004, the pickings are slim. The ticks gel close to +1000 and close to -1000, but they never actually hit these levels (see Fig. 9,7). I don't mess around with these kinds of plays. Either they hit 1000 ticks or they don't. We don't hit an extreme reading on this day until the final hour when the markets reg ister a +1000 reading. 1 leap at this opportunity to do something, and 1 short at the market. 1 am filled at 1117.25.1 set my stop and my target, and I turn on my timer. I kick back and watch the action. 2.About 30 minutes after my entry, my target is hit at 1115.25, and I am out for +2.00 points. Conveniently, the market is approaching its close for the day, and I can now do something more exciting such as arrange the soup cans in the pantry alphabetically. This is a good example of why it is so important to have a specific setup to wait for. Without one, a trader can spend a day like September 3 over trading and chopping themselves up. It is tempting at times to take a trade just to alleviate the boredom. But this begs the questionis the goal of trading not to be bored or to make money? 1. The ticks approach an extreme reading early in the day, but they don't quite get there, registering a high of +978 (see Fig. 9.8). Since this is not a game of grenades or horseshoes. I stand aside and wail until we get an actual reading of over +1000. 2. Again, we come close to 1000 ticks, but we don't quite cut the mustard. I stand aside and do nothing. This actually isn't as hard as it may seem. I don't stare at the tick chart; I'm only taking action if I hear the audio alert. 3.Finally, we get a reading of over + 1000.1 shon at the market, and I'm filled at 1106.75.1 set my parameters and await the actionhaving done nothing all day at this point in regards to this setup. 4.About 30 minutes later my target is hit at 1104.75, and I'm out for +2.00 ES points. 1. On May 24, 2004 the markets gapped higher and registered a +1000 tick reading early in the session. This was before 10:00 a.m. Eastern, so I treated it just like a phone call that pops up as out of area on caller IDI ignored it. Closer to 10:30 a.m. we got another +1000 reading, and I shorted this action with a market order. I am filled at 1098.50, and I set my parameters. 2. About 20 minutes later my target is hit, and I'm out at 1096.50 for +2.00 ES points. 3. Most of the rest of the day is quiet, but as we approach the last few hours, we get an extreme tick reading, and I take a short at 1096.50. 4. About 25 minutes later my target is hit, and I'm out for +2.00 ES points. 5. The ticks get wild and crazy again, hitting +1000, so I short, and I'm rilled at 1096.00. 6. The markets remain choppy, and my time buzzer goes off. 1 cover at the market, and I'm out at 1095.50 for a gain of+0.50 ES points. 7. The markets pop higher again and register an extreme tick reading. However, it's past 3:30 p.m. Eastern, so I don't take any action on this signal. L The markets gap up, and the ticks spend the vast majority of their time over the zero level (see Fig. 9.10). If at 12:00 noon Eastern the ticks have spent over 85 percent of their time above zero, then 1 pass on any further tick fade*, on the day. Remember, it is on these days that there is serious buying taking place. Only consistent and steady fund buying can keep the ticks above zero all day long. That hasn't happened yet, but it's in the back of my mind. 2* At around 11:00 a.m. Eastern the ticks register an extreme reading, and 1 short at the market. I'm filled at 1134.25, and I set my parameters. 1 take this short because at this point we haven't passed the 12:00 noon Eastern deadline. Also, in the rules I mentioned that if the ticks have spent all of their time above zero by 10:00 a.m. Eastern, I'd like to see at least one move below zero before taking a trade. In this case, we did get some moves just below zero. These aren't ideal conditions but they do pass the test. 3, Time passes by quickly, and my time stop expires. 1 exit at the market and I'm out at 1133.00 for+1.25 ES. 4. A little after 1 :OO p.m. Eastern the ticks register another +1000 reading. I ignore this reading because the ticks have spent over 85 percent of their time above zero, indicating massive fund buying, 5. This happens again near 3:30 p.m. Eastern, and I ignore this signal for the same reason. The markets are on fire today as is evidenced by the consistent high tick readings, with hardly anything dipping below the zero level. I therefore pass on fading these extreme tick readings. Although these days are rare, it is important to know what they look like so they can be avoided in terms of a tick fade day. SUMMING UP THE TICK FADES As 1 state in the introduction, the financial markets are naturally set up to take advantage of and prey upon human nature. When traders see a market running away without them, their natural instinct is to jump onboard and participate in the run. Although this makes sense on paper, this feeling of missing the move causes more trading errors than almost anything else. This blinding urge forces amateur traders to jump into markets based solely on the fear that they are missing out on a lot of profitsas opposed to entering the market as a result of a specific setup that they have mapped out and are patiently awaiting to set up. This extreme panic buying and selling is measured accurately by the ticks, and extreme tick readings provide traders with the opportunity to jump into the markets and teach the amateurs a valuable lesson. |
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