Weekly recap: Limited trading, but still gained insights

I had limited trading last week due to a family visit, and it will once again be somewhat limited due to more visits later this week.  However, I was able to get in some trades, still had minor bouts of overtrading, made about 1% gain for the week risking only about 15-20 basis per trade, and here are some other observations I made along the way.

• In some ways, the ability to have limited time to trade kept me focused.  The more time I spend in front of the screen, the more likely I am to overtrade.  The state of my mind changes, likely due to impatience, fatigue, etc., but even more so if my first couple trades are losses.  I might need to take breaks that are longer to help calm the mind.
• Even with limiting my trading time, it seems as though my usual pattern of starting with losses, then having to dig myself out of a hole still help true.  I'll need to find a way to break that pattern of starting off with losses.
• On those "rare" occasions when I start off the day with a few wins, I seem to become more complacent and passive, looking to protect my gains, and therefore limiting my upside potential.  Quite the opposite of when I'm trying to dig myself out of the hole.
• What I believe I need to do is to have a similar mindset as I do when I'm digging myself out of the loss.  However, I need to be careful -- What I don't know is whether it is the markets that are cooperating with my methods to create these big recoveries (i.e. lucky coincidence), or whether it's my mindset that truly changes and becomes more focused but yet aggressive when I'm underwater. 

During this period of limited time, I'm still continuing to read (and re-read) from Dr. Brett's books to consider how to implement new exercises and drills to enhance my strengths, and improve my self-discipline.  I'm amazed how every page seems to be packed so many great insights.  If only his books were available 20 years ago, I wonder what type of person (and trader) I would be today.

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Here are a couple trades from last week:  One that was almost a classic Trader-X beyond the opening range low style setup, and another that is a forex swing.

FCX 5m sell below 7th bar - I wouldn't rate this setup too much more than a "B", since there were some choppy/wicky bars in the opening range, and the setup took place above the S2 pivot level.  But there was something about this trade that seemed compelling.

FCX 5m 09/21/2011

The first 3 bars created both a "fill in the tail" and descending triangle type of short setup, although it didn't look good enough to take.  But after the fakeout breakdown, it pulled back up, bounced of the vwap, and created a green shooting star bar.

I don't usually like to short on green bars, but this one looked compelling enough since it had the opening range low [btorl], a vwap line bounce [vlb], and descending 5ema all aligning together.  Perhaps the only negative was the S2 pivot level which was below the price action.

I exited the first 1/2 on the break of the 161.8% Fib extension, and then exited from remaining 1/2 when it approached the FE which was also aligned closely with the S2 support.

AUDUSD - I missed the big daily chart move down on this pair, but believe there might still be some more room to the downside.  Friday was a relatively choppy, narrow, and indecisive day.  But based on the trendline of the highs on a 15 min chart going back a couple days as noted below, I shorted this pair after it made a new low, and retraced back to the descending trendline, and broke below the prior 15 minute bar, at .9803.  My current stop is just above .9850 (yellow dashed line).

However, it didn't follow through to the downside, broke the descending trendline, and went sideways.  Last Friday, I exited my short position and regretted it.  This week, we'll see how things are looking in a few hours once the forex opens.

AUDUSD 15m 09/23/2011

Timeout from my timeout: With charts of $CVH, $POT, $REXX

Although I'm technically on my timeout due to reasons stated earlier, it's actually due more to the fact that I have family visiting this week.  However, I can't help but continue to take a peek to see what's going on in the markets (i.e. seeing what I may have missed).  Taking time away from the markets has been liberating in many ways, and I've noticed that it has given me the ability to see setups more clearly.  Letting your brain rest is a good thing.

Recalling the college years, staying up late into the night cramming for tests just does not work well for most -- there's definitely a point of diminishing return  -- and I believe I'm experiencing the same with trading except on a longer time horizon.  This might be a sign that I need to stop trying to drink from the fire hose and pace myself better to prevent burnout.  Trying to balance my family duties which accounts for a solid 7 hours a day, along with trading which I try and dedicate at least the 8-9 hours a day, and finally sleep which I try and hopefully get 6-7 hours, leaves very little time physically and especially mentally for much else. 

But for the past couple decades, my fascination and passion for the markets has always remained, so there's no use in trying to repress it.  Time to continue marching forward, working on getting a little better and better, day by day.  Steady progression.

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Some interesting charts from today (9/20):

CVH - 5min had what I call a "3 bar reversal" [3br] triggered on bar 9.  This type of reversal pattern is usually good for a scalp and possibly a decent move, as was the case with CVH.

CVH 5m 9/20/2011

 POT - 5min/2min had a couple good short entries:
1) Short triggered below 12:25 red shooting star after a "VWAP line cross over 5ema" [vlco] took place.
2) Short triggered on break below narrow 14:15 bar, which was a pullback up to the opening range low. 

POT 5m 9/20/2011

REXX - 5min/2min - "VWAP LineBounce" [vlb] long setup on 12:45 bar.

REXX 5m 9/20/2011

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I've missed out on some good setups.  But overall, the markets also look a bit neurotic, so maybe I'm not missing too much.  OK, it's time to go back to my timeout.

Example: NVS - vwap line bounce setup (VLB)

Here's a nice example of the VLB (VWAP line bounce) setup on NVS from yesterday.  I did not take this trade, since I wasn't monitoring the markets very carefully.  But NVS was on my list from earlier in the morning, so it stood out when I took a glance at my charts.

Here's what it looked like at the time of setup on the 2 min charts:

NVS - 2min

If you look closely, there was a setup triggered several bars earlier, and I generally put my stop about $.05 or so above the VWAP, which would have kept me in the trade. But I'm going to be conservative and assume I missed it, or got stopped out, and look this setup from the 2nd attempt.

NVS - 2min - post setup entry

This setup ended up doing quite well, hitting the FE and even going down to the FE20 level.  I don't want to disappoint myself by calculating the reward/risk ratio and what I could have made, but this wasn't too bad for a "scalp" type trading setup!

Sometimes, things get wacky

Since the most recent theme has been VLB setups, here's an example of a trade in SBRA that looked like it was working, then failed miserably.  Yes, that spike on the chart is real, it's not a bad tick.  Out of nowhere, there was 200k volume on a 2 minute bar, when the average was around 10k.

This order caused the price to spike up $0.60+ (4%+), but then it came back down to earth in a matter of seconds as if nothing happened.  Blink, and you could have missed it.  Who knows, it could be all the algos, competing against one another. 

SBRA - 2 minute 2011-07-27

This was more like a C+ setup, since it only had VWAP as resistance.  But I took it for practice knowing the odds weren't as good.  My stop was above the high of 15.20, and I'm fortunate that my fill was 15.30.  I'd hate to be the person who got their buy order filled at the top tick of 15.83!

Setup: VWAP Line Bounce (VLB)

Here's an example from today of the VLB setup that I recently wrote about.

I didn't take it, but this provided a great risk/reward, especially if taken on the 2 min chart.  Risk was about 7 cents.  I would have exited 1/2 the position around 31.85ish.

Extra confidence due to:
1) VWAP was aligned pretty well with the .50 level
2) Resistance provided by the Opening Range Low (ORL)

TRN - 2 min chart

Setup: VWAP Line Bounce (VLB) - work in progress

After experiencing what I considered a great trading day on Friday where there seemed to be so many setups that just worked (but I didn't capitalize enough on), I experienced a Monday that turned into just the opposite. There was very little I saw that made me say "WOW" so I attempted ZERO trades.

In the past, this would have bothered me. But today, I see this as growth in my ability to stay disciplined to only take high quality setups, so I'm actually feeling pretty good about this. Sure, I saw some setups that I would have taken in the past, and some actually ended up doing OK. But nothing where I had great conviction in the quality of the setup. 

I did see a few that I've been researching, and here's one that might have some potential.  It's still work in progress, so it's not quite ready for me to trade in prime time.

THE VLB SETUP
So here's a setup that I've been watching and testing over the past few weeks, it's what I call the VWAP Line Bounce (VLB) setup. It's basically a setup where a price quickly approaches the VWAP, and it'll usually have some sort of reaction. I've noticed that under certain conditions, you can take the bounce with pretty good risk/reward.

ONTY - not the best example, but it worked

Ingredients:

• 5 min chart (you could also use a 2 min, but there's more noise to consider)
• VWAP line
• Candlestick charts
• Tape reading ability (optional - see notes)

Directions:
Wait for a sharp move that heads back to the VWAP line.  If the price approaches and stalls right around the VWAP (best if it touches or passes through by a few cents), wait for the 5 minute setup bar to be completed.

It is preferred if the setup bar is narrow.  If the setup bar is too big, the 2 min time frame might present a better opportunity.  Since you are looking for the price to bounce back where it came from, place a stop order to buy/sell on the break of the setup bar.

The stop should be place just beyond the opposite side of the setup bar, or about $0.05 cents beyond the VWAP line, whichever is farther.

Take profits or move up your stop when:

• You have at least profits double your risk (2R), or
• You have approached a significant Fib level, or
• You are seeing reversal candlestick patterns

Notes:

Works better on higher priced stocks, since there's usually more absolute price movement.  

Also works better if the VWAP is overlapping with one or more of the following:

• A whole/half number
• A Fib level
• A significant trendline or support/resistance

Remember, if the setup bar or anything else starts to look a bit messy or not according to plan, then simply pass and move on.  Your ability to read the tape could also help you to get a more optimal price close to the turning point, especially if the 5 min chart isn't setting up with a narrow range bar.