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Michael Filighera
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Michael's history with financial markets dates back to 1979 on the Pacific Stock Exchange Options trading floor. Michael has traded in the US, UK (London Traded Options Market), Netherlands (Amsterdam's European Options Exchange), and Germany (DTB). He is also an internationally published... More
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Logical Signals
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Logical Signals
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  • Market Awareness - Completing Your Checklist - Friday's Chart $NFLX

    As I discussed in Wednesday's post a key to successful trading is developing a sense of market awareness. An awareness that enables you to make adjustments to strategies, (tweaking) to fit what the market(s) are giving or not giving. Also, as I pointed out on Wednesday, I have a preset check list that I review each day before the market(s) open.

    Here is a partial list of my pre-market checklist:

    • What is apparent before the opening? Any relevant announcements or economic data, news stories, or carry over momentum from Asian and European trading.
    • What are my expectations with regards to market direction, intensity of the move(s)?
    • What strategies will I employ, which risk management profile will I use?
    • What indicators will I look towards for signals?
    • How will I 'tweak' my strategies to fit a change in market mood?

    There is also an often unspoken pre-market checklist that needs to be acknowledged and given a place at the table. We are a part of the market and in our very own small but collective way contribute to market moods. Therefore taking note of our physical and emotional status is also important.

    Having a clear picture of one's own relationship with money is critical and failure to include it as a part of your daily checklist may keep you on a perpetual search for success.

    From my bio I wrote:

    In the midst of the many economic storms currently swirling around the globe, making decisions is often swayed by crowd behavior or panic as prices race in both directions. Opportunities present themselves during chaotic, panic driven times. Opportunities often missed due to all the "noise". As a Market Maker on the San Francisco, Amsterdam, and London options trading floors I studied the psychology both employed and self-employed by the most successful traders. Most if not all-successful traders have the ability to stand within the chaos and pull out opportunities without succumbing to the panic itself.

    This ability was an early "master" lesson I learned and employed to great success. However, I have also felt the nasty crash and burn when I self sabotaged myself into failing. I miscalculated the nuisances of having to move off a trading floor "open out-cry" system to a computer screen that represented the trading pit and a keyboard to execute orders instead of my voice and pieces of paper.

    I don't know anybody that trades to lose money, but I'll be damned if that isn't what happens to more and more well intentioned souls. The emotional blocks that surround the 'blame game' are at times better protected than Fort Knox, and I say this from personal experience.

    As discussed in Wednesday's post there is a difference between knowing and caring. The knowing part of the equation is covered with the partial checklist above. The caring or emotional checklist carries as much weight as market awareness and has as detailed a checklist. Most of the time, the why not's of our emotions are usually embedded so deep in our brains that it can take several attempts to 'crack the code' so to speak. Gratefully, I can say it is possible to do. It took some time to realize that after I left the noise of the trading floor, the noise I was experiencing was primarily being created by me. This of course removed my focus from what was happening in the markets to whose fault it was that I was loosing again. It took several steps and persistence to get to the core but it is so often overlooked as unnecessary and that is the mistake. It takes strength to make friends with your unseen but strongly felt emotions. Make room for them at the table and listen responsibly and with accountability. I know, easier said than done, but it is essential. Paying for a trading coach to fine tune and implement a workable emotional checklist proved to be a wise investment for me.

    The concept of trading the number continues to function in its pure form, but the time portion has grown in importance by a factor of well let's say billions. Time as a number is critical to strategy implementation. Data travels at the speed of light across fiber optic cables, which is a far cry from 5, 10 or15 years ago. Until the next set or rules and regulations are passed by a group of well meaning politico's trying to satisfy a growing army of disgruntled investors who haven't figured out yet that the blame game is more about them than the accused, we need to continue to be the 'gnat on the elephants ass.' Seriously, think about this, when haven't the markets been 'rigged' in favor of the overtly greedy players. Since they rarely have an original thought on trading the only way they can fulfill their ambition is to 'rig' the game in their favor.

    Thursday's pre-holiday trade presented its fair share of opportunities as traders quickly adjusted positions to get a jump-start on the long weekend. Options expiration was pushed forward a day due to the holiday and this added some volatility. Check out today's chart on NFLX over 4 trading days for trades and discussion.

    (click to enlarge)

    The current atmosphere remains prime for day trading. I expect there will be numerous opportunities from a growing list for both traders who approach the market from a bullish perspective as well as traders who approach the market from a bearish perspective.

    Remember the key is being able to reduce and separate the "noise" from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the "chaos" and by trusting the mechanics of your strategy, be able to take advantage of them.

    Opportunity continues to knock on our doors. While it doesn't come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 18 9:07 PM | Link | Comment!
  • Quiet Days Can Be Profitable Days - Chart $NQ

    Quiet trading days can be profitable trading days. Pre-holiday markets look to have kicked in on Wednesday with the beginning of Passover this week and the long "Easter" weekend coming up. There were long periods of no direction with choppy trade being the pattern.

    I don't think anybody really likes choppy range bound trade. In fact I think it frustrates many as they sit and have stops triggered in both directions. One trader who called me on Wednesday decided to blame himself by saying, "no matter which direction I choose it comes back to bite me in the ass." I can't blame them for the feeling, but the problem may not be that the trader is wrong about direction or how to trade. Maybe it has more to do with "market awareness" and knowing how to 'tweak' your strategy to fit what the market is giving. This is a very important process to learn and master.

    (click to enlarge)Let's take a look at the $NQ and Wednesday's trade. What was apparent before the opening, how did the markets leave trading on Tuesday's close? What are my expectations with regards to market direction, intensity of the move(s), which strategies will I use, which risk management profile will I employ? What indicators will I look towards for signals? How will I 'tweak' my strategies to fit a changing market mood? This is part of my daily process that I do pre-market. Please don't be naïve in believing you can just switch on your screen and jump in without any preparation.

    A major premise every day trader needs to embrace and accept is not caring why the markets are going higher or lower. Not caring that sometimes, as in Tuesday's turn off the low back to the highs, the markets make sudden thrusts in the opposite direction for no apparent reason other than more buyers than sellers or vice versa. Don't misunderstand, I didn't say not know why. There is a big difference between not knowing and not caring. It is easier to trade knowing at what rate the index arbitrage traders are flooding in to the markets with buy and sell orders. I don't have to care why they are choosing to buy and sell when they do and by not caring you can trade the number.

    Reduce the equation down to its most common denominator. That is always going to be a number. Whether that is pertaining to your profit target, stop loss level, number of contracts to trade, or indicator. Now you can start to effectively build your market awareness.

    At any given time there are many factors in operation - many signals being generated that produce volume and direction. It may be momentary or it may be for several days. As I've talked about previously, each and every trading day there are day traders, position traders, and arbitrage traders within the equity, treasury, precious metals, and commodity markets most running algorithms trading in a microsecond, that is dividing a millisecond by the way. A blink of an eye takes 300 to 400 milliseconds. There are 1000 milliseconds in each second so a blink of an eye occurs in approximately one third of a second. The modern human brain hasn't developed enough to consciously process stimuli in microseconds. That doesn't mean our brains are not capable just not developed enough. However, having said that there are trading firms spending way more money then I'll ever see in my lifetime to be ahead of the pack by microseconds. This is why I also always say, "I just want to be a gnat on the elephants ass. Let the hunter shoot the poor elephant."

    There are derivatives on just about every listed product under the sun. Options on equities, futures, and commodities have expanded daily volumes as the additional traders hedge and balance positions - how you may ask? By adjusting what is commonly known as the Greeks, which are: first order - delta, vega, theta, rho and lambda, and second order - gamma, vanna, vomma, charm, veta, and vera. Yes, there a several I've never heard of and I'm an ex-market maker. In any case the greeks are the quantities (numbers) that measure the sensitivity of price of derivatives to a change in the underlying parameters which the value of an instrument or portfolio's risk sensitivities, risk measures, or hedge parameters are dependent on.

    Learning to trade the "number" is an astounding concept that human beings have a lot of trouble with. Talk to a statistician about this. Understanding the odds and probabilities is important. Not understanding them may ultimately defeat you and force you out of the game. Understanding how various types of traders can affect an underlying. Understanding that computers don't have emotions, they operate mechanically at break neck speed. Understanding the laws of probability.

    Check tomorrow's post as I continue the discussion on market awareness and "trading the number." Today's chart is again the $NQ but through the eye of the Falcon and under the microscope. This is where I basically dissect the first couple of hours, check it out for trades and discussion.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 16 9:46 PM | Link | Comment!
  • Nothing Goes Straight Up Or Down, Following The Bouncing $NQ

    The bulls and the bears went at it again on Monday, with the media giving today's fight over to the bulls. I dare say that the reality of today's trading was more a function of running algorithms than someone being bullish or bearish. Don't get me wrong I still believe there is a certain amount of bullish or bearish opinion that helps or hinders a move, but the main driving force behind the moves remains algorithms. Algorithmic traders number in the thousands and are often day traders, options traders, arbitrage traders, or futures traders. Scattered around the global financial centers the ball gets tossed around the world by the biggest players in a myriad of markets. Traders react to signals generated by a growing list of indicators such as momentum and moving average oscillators, large options trades, or if the bonds are higher, if the dollar is lower, if gold is up or down and so forth. There are so many variations of and on signals in force at any given moment that it is simply not accurate to say that the market is bullish or bearish.

    It felt on Monday that the traders may have come out of Friday's options expiration shorter than when they went in and expected, (hoped, prayed) for a "crash" like downslide. It got tiresome listening to all the moaning and complaining from the shorts, but eventually they get a breath of air just before the next whine-fest began as prices got 'goosed' higher into the closing bell. As a suggestion in avoiding missing some solid winners, (the NQ popped $30 in the last 30 minutes on Monday), when the whine-fest begins either hit mute, hang-up or turn off the live feed.

    As a position trader I feel their pain. Becoming fixated on a fast sinking PnL leaves a very negative pall over oneself. I've been there and done that! And don't be fooled even the deepest pockets get noticed when a position is going against them. As an ex-market maker I can attest to the "jonesing" like feeling that comes up when you don't have several options positions in play. That quick jump to the scan tab on your TOS platform sends a quick jolt of endorphins to your brain, but then you hear an audible from the Eagle - 'long set up NQ' and noticing that the ATR trail indicator has confirmed it as you hear 'long NQ'. You take the offer buying a two lot as Trade Manager takes over the trade's risk management as the ATR guides it to a $22 winner. Now for the honest part - the Eagle and the ATR are a fine combination in capturing mega winners. In all fairness not every signal generated is a winner, but the winners dwarf the losing trades when the above combo is in sync. Ok, here's the challenge - if you want to become a successful trader you will have to become engaged and trade. This is one reason why I adhere to and have much success with 'trading often and trading small'. You don't need to have a pissing contest with the other traders behind the bid/ask on your screen. Everyone is anonymous and computers don't care why anybody is buying or selling. Here again don't get me wrong 'size is something' and egos can and often do expand and contract with how much you got and how long you can sustain a losing position. Trade will still go to volume more often than not so no need to play the 'tough buy' and get taken out of the game. I for one enjoy the game too much to risk that - I enjoy trading and following the markets. I totally enjoy the luxury of not having to get all maxed out because the market is sliding lower or surging higher. I enjoy having the ability to jump on board and either trade it for the intraday trend (several minutes to an hour or more) or the intraday trend swing (several seconds to several minutes).

    Having the right tools does make all the difference in achieving that. I will continue to say ' if you can't beat them - join them' - and I don't want anybody else to beat them either. Let's face it whether or not the broader indexes belong trading at the levels they are just doesn't factor into my equation from the opening bell to the closing bell. Having said that please don't play the fool and not believe you don't need to pay attention - there are always binary events lurking and some build up much more anticipatory momentum than others and produce serious explosions of volume and direction. Not having to defend a position and having the correct signal generator and risk management tools in place is awesome - and that you can take to the bank.

    Check out today's chart of the $NQ_F through the eye of the Eagle for Monday, April 14, 2014.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 14 11:23 PM | Link | Comment!
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