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ES trade

July 31, 2008

Had a nice winner today on the ES. I have been dipping my toe in over the past 6 months or so to see how it feels to trade the big index with intentions of being in for only a few days max and often out the same day. I’m still experimenting a bit to find/feel what works best for me with this in and out stuff.

I have a grid setup that I use for ES trading on the TOS charts page. Four charts with the daily in the top left corner going clockwise to an hourly, 15 minute and finally a 5 minute chart in the lower left.

For the moment, I’ve been trying to make trades risking no more than 2pts. and I want a target of at least 4 pts.

I look to the daily and hourly chart to support a directional trade on the smaller time frames. Once I have the framework of the longer time frames in mind and the appropriate lines drawn, I look most often at the 15 minute and set alerts as I see fit at important pivot points for patterns or trends setting up a trigger. I aim to make most entries based off of 15 minute charts while using the 5 minute to better inform a tighter entry.

Exit strategy:

  • Stop out at 2 pt. loss.
  • Sell half at 4+ pt. target. Let the other half run until a suitable return or obvious point of resistance on a daily or hourly time frame (discretionary or potentially left with a limit to sell order).
  • Second half may be held over night if sitting on profit and the trade is in tune with the short term daily picture (trend, support/resistance, pattern, etc.) It may however also be sold somewhere around the 4 pt. profit level quite happily.
  • If the daily trend is strong and/or the setup is particularly beautiful and there is 3+ pts. profit in the trade, both halves may be held overnight.

Today’s trade:

Intraday resistance breakout from intraday resistance in new bull trend on the 15 minute.

Using a stop at 2 pts. risk, thinking of it in two halves, the risk to the downside is 4 pts. per whole position. In this case, totaling the two separate exits, I took in a profit of 28 pts.

With a gain like this, one would need 7 losses in a row just to get back to break even. Maybe they won’t be all this nice. But in all of the ES daytrades I’ve done, about 8, I have had one other ten point day for a whole position. The other ones were not too noteworthy to the up or downside. Somewhere around 2pts either way, mostly canceling eachother out with perhaps a bit more to the loss side. In total, those two trades far outweigh all the other losses.

The Details:

7/29/08 15:30:38 Buy /ESU8 at $1258

15:57:41 Sell Half at $1262

7/30/08 15:56:50 Sell Half at $1282

So far……..ME LIKEY!!!

(Click on the image to see it larger.)

Nice winner.  More of these, please.  ;)

Nice winner. More of these, please. 😉

I am considering moving the risk allowance to 3 pts. instead of 2 for this system. There are, however, questions of expectancy, win/loss ratio and P/L that will be altered by changing the risk/reward requirement and/or the method for taking or preserving profits while limiting losses. So for the moment, I’m thinking I’d need 6 pts. for a target on 3. pts. risk. Though I think the basic rules above would be a successful system, I also think it would have a good number of trades that would to some extent cancel each other out in terms of profits and losses. Of course, the big winners would make the system the potential big winner it could be. But though it would generate less trades, I am inclined to think that it would be better to risk up to 3 pts. due to the normal swing on the short term intraday chart is a touch more than 2 pts.

I look to the ATR (Average True Range) indicator to see the current value on the ES 5 minute chart and it reads 2.83. Using a 3 pt. stop loss still needs well chosen entries in order to not get whipsawed, but I think it is doable. 2pts. has been perhaps a bit too tight to expect to do well without high whipsaw rates.

In any case, this is something that can be worked out with experience using the ATR. Perhaps it will wind up always as 1 ATR or perhaps 1.5 ATR. Regardless, it’s a good start for a work in progress.

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