It seems momentum in the ES (S&P 500 E-Mini) is back and the day trading is good! After a slow start to the year with some choppy (but still quite profitable) days it's definitely nice to see some smoother moves. The pre-market was showing nice swings following the US holiday so the expectation for some good movement was there before we even got started.
In order to trade well there are some key elements you need to have sorted out before you hit the button to enter the market. First, you must be able to identify the market context and understand where price is in the overall picture. Sometimes this means creating a bias for a single trading direction but more often it means considering the possibilities the market is offering right now and also what is likely in the future so you can adapt and execute as needed moving forward.
From there you need a confidence in your methodology and your trade management techniques in order to enter the market when an opportunity presents itself and hopefully make the most of it. Many people think this means making money on every trade and ending up with a hundred points a day, but any seasoned trader will tell you that doing well in this game is all about managing risk.
Taking your day trading to an elite level is all about knowing when NOT to take a trade.
It's also about managing those trades that don't perform to minimize your risk. Even if it's just a tick here and there that adds up to a considerable amount of points over the course of a month or a trading year. Knowing when to give up on a trade early and when to hold out through drawdown is one of the most difficult trading skills to master.
I went into the market today with a simple plan. I saw the pre-market move had opened up a wide range so I just needed to wait for the momentum to be on my side and then trade for the edges if possible while being aware of potential areas where we might see strong order flow (supply and demand) enter the market. After the New York open we moved up to resistance at 1481 and saw a strong pop to the downside. An entry here didn't fit my rules based on the overall market conditions and structure and once we continued down I started to think about a possible short. The move slowed and didn't follow through, and we then saw a quick burst of order flow to the upside. I entered on the pullback at 1479.50 and set a target at 1.5 points which was hit. In normal conditions I like to aim for 2 points or try and hold to see if an area might break but in this case the upcoming news was reason enough to pull the ticks off the table with a take profit order at the prior highs. It is simply too risky to attempt to hold through news unless you are in very specific conditions like a strong trending move.
News shifted the momentum of the market to the downside so shorts were on the cards. I let the first possible opportunity go due to the quick bounce off the trendline but once we made a lower low I placed my order. Price pulled back and filled me for what turned into an excellent 2.5 point trade. My initial target was 2 points but the strong initial move down convinced me to adjust my expectations. I placed my order near the lows at 1475.50 and then simply waited to see what the market would offer. The market started to tell a tale when we stalled between 1477 and 1478 for 15 minutes so that was definitely a warning sign. We did push lower as expected due to the overall market momentum but then we once again started to see some stalling price action. I pulled my trailing stop to the breakout point at 1477 and continued to trail very tightly. After a brief attempt lower we came back and my trail was hit at 1476.50.
The overall market momentum was still strong to the downside so I thought it worthwhile to make one last attempt for the lows at 1475. This was a lower percentage trade due to the slower and choppy price action I mentioned earlier but the bottom line is that you rarely know when the trending move will truly end so it makes sense to take the trade in a case like this. The trade came back and after giving it a couple of attempts to come lower I bailed on the upside breakout for a loss of a point. I only risk 1.25 points (5 ticks) on any trade but saving that extra tick can really add up.
The failure of the market to push to the lows then created possibilities to the upside.
As we didn't have excellent momentum I took a more conservative entry at 1477.75 instead of a tick further up. The target here was absolutely perfect. When I draw my lines as the market progresses through the day I like to extend them as they often come into play later on. Here we had some excellent confluence so leaving my take profit at 2 points was ideal.
That move up did confirm a shift in overall market momentum so another long order was placed and filled at 1478.75. This is where I made my big mistake of the day as you can see. My order was initially at 2 points but a strong move up made me move it up to the earlier highs as I wanted to see if the area would break relatively cleanly. As you can see we had a lot of trouble spots in the earlier resistance area and the trendlines. Look at how well the structure of the market held price! Things are rarely this clean in the market which is why I really should have been more confident to hold a little longer. It simply chopped and held that area a little too long for my liking so I decided to take my 2 points off the table. Only five minutes later we had broken higher and were off to the races! After that it was a simple matter to get the final 2 points on the pullback and since it was already 1PM EST I wrapped up for the day. Turns out there were plenty more points to be had as the trending move continued if I stuck around but why be greedy? 9 points is more than enough!
There is an important lesson in what I wrote above for aspiring day traders and professionals alike. Like it or not, perfection is simply impossible to attain when trading the markets. What matters is looking at your decisions for the trading day as a whole. Some will be better than others, some will leave money on the table, and some will have you kicking yourself for a week. That said, as long as you are making good decisions more often than not then you will be happy with your results at the end of the day. There's no use getting upset with a missed point or two on a single trade. Mark it for review, try to learn some lessons for the next time, and move on. There's always another trade on the horizon!