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  • Jeffrey Lin: Intraday S&P E-mini Futures Trade Example with David “FirstWave” Elliott’s Method

    *In this morning’s S&P E-mini Futures (NYSE:ES) LONG trade, I mainly used the method my trading partner Handsome James Falvo (@jsfalvo) & I learned from David Elliott, a.k.a. FirstWave.  The indicators mentioned here are seen in the bottom: Blue (CCI 50-period), Yellow (CCI 20-period), and Pink (CCI 5-period).  However, I did benefit greatly from Fari Hamzei (@hamzeianalytics) proprietary CI indicators in his HFT chatroom & twitter.  While James & I were keying primarily off the CCI, General Fari was in the same trade to the long side using his CI and other indicators.  It was awesome to “fly a mission” as we say in the HFT room with General Fari, with his calls & CI indicators further confirming our own trades.

    Always cool to have real time examples…showing you how this works.  I caught part of this move…but did not trust the indicators enough to stick with it and get all the meat :(

    Charts from Left to right:
    333Tick   5min   15min   1-hr

    Picture 8

    *note: the up & down arrows ARE NOT where I entered and exited. Had them on testing the Person’s Proprietary Pivots by John Person on ThinkOrSwim.
    I missed the opening drop..was sleeping lol.  When i got to my desk, /ES trading ~1065 having ALREADY touched 1063.  Look at the hourly CCI yellow (20 period).  Down in -300 region.   -200 and you should start to get interested and look for reversal signals with candlestick formations, internals like TICKS & Advance/Decline, etc.  The more negative (or positive) the readings get, the stronger the bounce or reversal will be.  HOWEVER, the KEY is to wait for the indicator to flatten out and even curl up a bit (i.e. curvature). When you see these big signals on the hourly, that’s huge, and often takes days to work off the reversal off that bottom.  I went long at 1065, then when it pulled back down to 1064, I added, using the shorter timeframes to judge when to enter or add. When price got back ABOVE the 20 and 50 moving averages, the trend has moved in your favor, so you can be a bit more aggressive.  Even tho we chopped around before the darn thing finally went higher, all the selling pressure had gone out and dips were good buying opportunities..and when the selling were ALL gone, nice woosh up to 1070+.

    If the hourly was curling up, you’re READY to buy, but must wait for the 5-min or 333ticks to give the buy signal as well for the entry. Otherwise, your stop could be far far away and you’d have to sit through a lot of pain before you get the big hourly reversals up.  It’s all about the entry.  If you enter when the hourly is setting up for a big reversal rally, but the 333ticks still pointed down, you could very likely get another leg down-could be very scary and you get out of your position (whether because of a stop or just avoiding some pain to get in lower), but when the reversal comes you’ve already spent a lot of emotional capital you’re judgement is impaired.

    In David Elliott’s methods, the longer term indicators (20-period is medium, 50-period is long term) are the dominant force.  The Pink 5-period indicator gives the “minor” wave moves. If the 20-period or 50-period are heading up, do not try to short for more than a scalp of a couple bucks.  Likewise, if the 20-period or 50-period are heading down, do not try to go long since the selling pressure is on full force and won’t stop until you get a wash out of all the sellers…or as General Fari says, “cleared the decks (of sellers).”

    Look at the CCI indicators on the left-most time frame (333tick).  Notice how the Yellow (20-period) and Blue (50-period) were all trending higher, going from below -100 (bottom red line) to eventually +100 (top red line).  In the process of the Yellow and Blue lines heading up, the Pink (5-period) went +100 and -100 several times.  But as I just explained, the “trend” with the Yellow and Blue were UP..so the Pink “drops” to -100 were “pullbacks” where you can “buy the dip”.  Notice each time the Pink “dropped” to -100ish while the Yellow and Blue kept marching up, they were good chances to get in even if you didn’t buy the low.  You do not need to buy the low as futures markets will, more often than not, give you another chance to get in if you’ve got the direction right.

    **We have a few of David Elliott’s nightly videos from ThinkOrSwim and TCnet.  David is a great teacher and a giver-for a couple years he’s been on these nightly review sessions for free, each night spending hours doing these live.  David had heart surgery a few months ago and haven’t had his nightly sessions for a while.  Please pray for David’s recovery and check out our David Elliott channel:

    http://finz.tv/channel/davidelliott

    If you find his methods easy to learn and very useful, as James and I have, you can get David’s training CD’s here:

    http://finz.tv/get/davidelliott

    I know they’re expensive, but they’re definitely worth it.  Just one good trade and avoiding one bad trade will pay for these CD’s and more.  I will honestly say I finally found my trading instrument in futures, and trading method in David Elliott’s teachings, and enhanced by Fari Hamzei’s market experience, wisdom, and how to use indicators such as market internals. I am forever grateful to what I’ve learned from these amazing professionals.

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    **Disclosure: no positions in stocks mentioned**
    Oct 13 1:35 PM | Link | Comment!
  • @Brasil61 On the Euro View, Responsibility for Bad Advice, and Lottery Plays

    On theory, economics, and charting I always look for a way to use these…and in this case to apply them to trading profitably…

    …I think the Euro is over-valued and contrived and I’ve read enough great points of view to back that up.. from leading experts, backed up by data, theory and historical examples.

    However this will not pay the rent or put food on the table…and more so.. is dangerous to my capital. As a trader …who trades for a living..I need more definitive stuff…

    My point of view.. guessing about tomorrows action is as dangerous as playing the lottery.. now throw in Non Farm Payroll Friday…and the trade becomes more difficult.

    Thursday night, I listened to a Pro video with a decent size following, a big company behind him …and of course all the right contacts ..recommend what I believe to be… the wrong approach… based on the Thursday close.. I called it as a mistake on Thursday night…and what I called ..held up. This explains that thinking.

    One of the best advantages a small trader has is being able to move in and out.. or not play at all. Why position yourself beforehand ..if you are not a big player? What’s the edge? …Especially on a COUNTER TREND TRADE.. when probability shows it is at best 50/50..

    ..I use charts..not to guess but to put probability in my favor before I risk capital.

    It is like a surfer guessing what the waves will be like the next day because todays were great. So he waits in the water the whole night to be first to the party. Sometimes he is early and right and sometimes wrong.

    50/50… not good odds.. So now in a position early…you are wasting energy and attention..when the real action starts you are out of position ..so you sit there ..second guessing ..your plan. ..and you should ..it was a poor one.

    ..Throw in trading costs, slippage, volatility and it will be hard for you to do your best, and therefore make money ..as you are competing in the money Olympics…everyday.

    I call this expending emotional pips..and those are expensive ..as they drain you keeping you from being able to be responsive as opposed to reactive. Also even if you trade your way out of a mistake or get lucky with your guess it was still only a guess ..and if you trade like this as a habit ..probability will eat you.

    And also expecting a hurricane (2008) every time it’s a bit windy makes for many false alarms.. (Top pickers)..

    This is the way I use charts and tools to view the market action in this case the EURO.. well guess what?

    I hate the Euro..but.. the trend is UP..I’ll start with a look at the weekly past and present and try and make some sense.

    Here’s the tools I use…

    1. 5   period ma – pink smaller broken lines
    2. 20 period  ma – green larger broken lines
    3. AMA – solid blue line
    4. Trend lines – blue large unbroken outer up trendline, blue broken inner trendline, blue broken 2nd inner trendline ..
    5. RSI and a Stochastic

    Nothing revolutionary… simple is better ..especially if you understand how to use these tools ..what they do..what they mean.. I also use bollinger bands w RSI as a guideline and confirmation on my trading platform.

    So the weekly chart.. $EURUSD

    EURUSD WEEKLY EDU

    On the previous multi-year bull market in the Euro ..there was an outer up trendline, an additional 2 additional inner up trendlines. Notice the increasing angles of ascent on the inner trendlines.

    4 things to notice when the Euro was ready to correct and or topped

    1. Volatility increased – look at the size of the weekly bars orange box left, red box top
    2. Inner Trendline – Angle of ascent became to extreme which could not be maintained and then subsequently was broken
    3. Price moved to the 5ma first, then the 20ma and notice the direction of these ma – up down or flat – ..and whose on top (more on this later)
    4. A range of consolidation was created (left orange box and the top) …it did NOT just fall off the map.. plenty of time to enter long or short..

    Why? Because the EURUSD pair is a monster ..BIG bulky and hard to change direction quickly …as price trend represents belief …and belief is hard to change.

    So what’s important to me to understand trend or signs of possible trend change.

    1. Trendlines – (all) – plus – angle of ascent /descent of ITL’s and breaks or bounces on these
    2. The direction (moving up flat down) of the 5 20 MA .. also when (if) the 5 crosses the 20 on the weekly..and how far the 5 is away (stretched) from 20 (note the pink bars I put on the chart just to highlight the extremes) ..and… How far is price stretched from AMA..for how long..and where are the candles ..above or below
    3. Price levels – and previous price levels (floors and ceilings) all the matching colored boxes are showing price level memory
    4. Candle formations
    5. Indicators – least important- note the stoch crossed late on the big drop.. (price candle formation and MA’s tell more sooner) … RSI was finally under 50 and the move started to accelerate

    Notice I didn’t say sentiment ..why? …the best truthful record of sentiment is the direction of the 5 20 MA’s and price in relation to them. (or whatever ma’s you find useful for you these work for me)

    What I see about EURUSD present price

    1. The 5 20 MA’s are sloping up… not even threatening flat – yet..
    2. 2. There is very little relative volatility – yet
    3. 3. The left orange box shows 16 weeks of BELIEF that this range is fair value price…the drastic down in July 2008 tried to slow thru this area (middle orange box) but kept going ..the market believes this area important = possible fair value = right orange box
    4. 4. Price eventually bottomed and PROMPTLY rebounded to this price area (pink circle) ..tested the bottom and now is moving back up in a much more sustainable uptrend
    5. 5. Bulls scored a point made a new high above this pink circle and is now pulling back
    6. 6. Euro still above 5 ma and is trying to establish this range as a floor

    Conclusion: The Euro is in an uptrend ..there are only a few not so great reasons to short here (except if you are a volatility scalper this does not apply)

    They are:

    1. Shooting star
    2. Price level – naturally inclined to pullback after breakout and up off the two strong weeks of bull candles
    3. Stochastic crossover weekly ..however on a daily this is oversold crossing over at the bottom..so this level needs more test up and failure to be a good short imo plus RSI is still well over 50
    4. Sentiment – the contrarian contrarian sentiment ..which starts to remind you of the smart evil guy poison in the glass scene in “The Princess Bride” film .. “I know you know that I know that you know that” …which means from what I have read and heard.. everybody is short the dollar..but also everybody knows the USD is a value trap mired in structural and fundamental weakness with a just don’t understand.. and can’t count either Congress and President ..sentiment is a guess at best.

    Good reasons to short the EURUSD..like last time at the top..

    1. Candle formations showing bear – long sticks constantly failing at 1.60- yellow areas
    2. Stochastic, RSI – look at yellow areas
    3. Full Candles closing below 5 ..then the 20 then the AMA
    4. ***** 5 20 MA crossing over on weekly
    5. Candles breaking and falling below blue AMA = sell zone
    6. Breaking uptrend lines …
    7. Volatility increase

    Now about entry

    ..I showed on Thursday night a daily chart where I believed the correct entry was… entering down near the low of Thursday.. has no respect for the major trend ..on the weekly.. which is up.

    EURUSD_thurs_bearcandles

    And even with that big ugly bear candle from Thursday Friday’s move was tested …UP.. to the hilt..why? ..because the weekly is in a strong uptrend, bounced and held the 5 ma…

    Also and maybe most importantly …you will find few big bear candles that are not tested on the daily offering some kind of better entry and signal ..than a lottery play before NFP.

    I’d bet that 70% or more daily candles overlap ..meaning test.. up on a bear or down on a bull…especially on the EURUSD pair ..this isn’t a low volume cross.

    EURUSD bearcandesEDUThis Thursday candle was a 565 pip bear ..I went back to March 2009 Daily Chart and could only find 6 times a clear bear candle wasn’t tested next trading session..and all of those times were reversed less than 5 days later…Why imo ..because this was an uptrend..and also tests of candles is the action of market price discovery.

    And even on crosses I don’t understand chasing entries ..you just don’t do it..bad plan..

    Most of all ..none of this is original ..I am just passing on what I was lucky enough to learn from some really great people … Rev Shark, pokerface, beaky, FxChief, yoda, and bigdog..wherever you guys are ..thanks

    I’m out.

    @Brasil61 on Twitter

    **Disclosure: No positions as of this post**

    Oct 06 10:26 PM | Link | Comment!
  • TraderAlamo: Forget 1933… Technically Speaking

    The legions of zombie Technical traders is reminiscent of the scenes in Will Smith’s Legend that take place near NYC’s Grand Central Station. Oh rest assured, these zombies are not your garden variety. They are indeed smart individuals. They read the best blogs with a fierce intensity. Oh, and do they read a ton of them!! How do I know? Many of them were once twitter follows of mine, and they made sure to fill my feed with every link imaginable: CRE downfall, Ghost Ships of the Baltic, Regional Bank doom, male pattern baldness, and my fave, ‘Even a Monkey can Short Stocks’.  Yep, these are the same folks that assured me a retest of the lows was in order. You know, the DJIA 2000 crowd. How did that trade work out? Better known as the price of Gold will cross the Dow at some point.

    I see you with your charts of 383 B.C., 73 A.D. (The Vesuvius Dip which was followed by the Rally of Augustus years later), 1933, 1938 and 1993. You are so desperate for finding answers to market direction that you look for it in historical charts. It amazes me how even professionals have such a terrible feel for market timing. This is not the making of a top, but a correction. A digestion of a glutinous rally. An October scare is what we need to propel this market into year end. Until we get a blowoff move the bull is intact, so stop trying to poorly time the move. Sentiment also is not what we see at tops. Tops are strewn with calls to buy, not calls for the ‘Return of Armageddon’. Well, I guess that is why I am writing this blog now. I don’t miss moves like many pros do. I also don’t anticipate turns like they do. I don’t have their egos either. I want a market that is a layup for me. You can have the Verduns, Guadalcanals, and the Hues. Admittedly, this isn’t an easy moment here. Oh, and, make mine Desert Storm. 

    Take a load of your feet, and watch this market video from my new show: ‘The Big Top”. Also, now available on by clicking here at itunes as well! Giddy up!

    Oct 02 6:44 AM | Link | Comment!
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