Thursday, April 19, 2007

April 19 Trade summary

Although I was only in the market for about 30min of trading, my trade executions were very good today in my opinion. I know I'm trading well when my trade is green after 20seconds and I'm exiting the trade within 1-3min. I finally got the key buy setup today at 7:19am. I went long on YM on a NYSE TICK low extreme and when the NYSE A/D was retracing during an uptrend. I got 13pts on YM in about 3min. If I had gone long ER2 (which was more bullish) at the same I would have gotten about 3 to 3.5pts. After seeing the big bullish divergence between ER2 and YM, I looked for short trades on YM and long trades on ER2 there-after, and as you can see from my trade executions, the idea had worked.

P/L= $187

Yesterday, YM acted like it had bullish divergence compared to ER2, and now it seems like the reverse today. Out of ES, NQ, ER2, and YM, I believe YM has the largest percentage of retail traders. Knowing this may provide insight to why we see these divergences or "exagerations" seen in YM. I like to look at YM as the futures index that should be faded during volatility spikes, due to the miss pricing that we frequently see from impulsive trades put on by begginer retail traders.

Market observations-
Being able to gauge NYSE TICK in conjuction with NYSE A/D, as well as looking at the volume seen in ES and ER2, is the key to trading index futures intraday in my opinion. Today we're seeing a pullback in ZN and JPY, what'ya know! And now YM is filling this mornings gap. We could get new highs on the stock indices tommorow, but my outlook for this new high is skeptical. I think ZN's pullback is being bought and the stock indices rally is being shorted. The fact that bonds and the stock market are starting to trade inversely again with greater volatility is good for us day traders. I will continue to trade small size and look to make my money 1 day at a time and avoid taking big bets on where the market is headed.

I like this post by Jeff Quinto- titled- The Homer Simpson School of Trading. He basically says, trade small, build consistency, and your account will grow. Over time your trade size will grow along with your account. Trade larger size that you are not use to, and the results could be disasterous. As a reflection on my losing days, each day was a day where I traded larger size when compared to my avg. day.

Checkout this chart of YM compared to ZN, ZG and CL. A lot of people think that money would move into commodities when the stock market sells off. But May of 2006, and this last February, we saw the opposite of that. When the stock indices sold off, so did gold, while on the other hand the bonds rallied. Checkout this article from last May by Jim Jubak titled- How Japan sank the U.S. market


Jeppetto on 2:12 PM said...

congratulations on the good trades! thanks for the insightful charts.

NA on 7:37 PM said...

Hey dude-

glad to see your back in form. Personally, I I think the JPY/ZN relationships work best with SPY, inversely. Every now and then we might see inverse correlations between the rest and SPY, like commodities, as you've alluded to, but I think you will agree that more times than not JPY/ZN have the best inverse relation with SPY.

What do you say? Tx

HPT on 10:20 PM said...

I agree that more times than not we would see JPY/ZN trade inversly to SPY, and JPY would be the laggerd between the JPY/ZN pair; moreover we would also want the EURO (eurdollar- globex symbol GE), which has the best liquidity and greater volume, to be trading in tandem to help confirm the trend in JPY; moreover, sometimes I see a bigger pop in GE than JPY. The swiss franc (globex symbol 6S), gold, and crude oil are sometimes good pairs to watch as well. When there is news that is pending that affects bonds, then the bonds can stay flat leading up to the news and then explode in one direction off of the news (like last weeks CPI #). With more volatility, I would expect to see the inverse relationship betweem JPY/ZN and SPY increase, especially as we get closer to FOMC meetings, BOJ interest rate meetings, and G7 meetings. When JPY starts to reverse it's down trend (unwinding the carry trade), or the BOJ raises interest rates, then things should get interesting.

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