Fixed Value & Percentage Value Stops

This is the second in a series of articles this week that began with the October 30, 2006 article entitled “Protecting Profits With Trailing Stops”.

Here are some examples of the two versions of trailing stops mentioned yesterday.

A trailing stop that sets a fixed value. Let’s say you bought at 1350. You decide you can only tolerate a loss of 5 points. Therefore, you enter an order that says “sell at 1345 stop market” (5 points under the entry price). Then as prices move favorably, you move the stop price so that it is always 5 points below the most favorable price seen since starting the trade, but if price moves unfavorably you don’t move the stop until price moves favorably again. Some traders call this a Chandelier Stop.

A trailing stop that sets a fixed percentage. Let’s say you bought at 1350. You decide you can only tolerate a loss of 10%. Therefore, you enter an order that says “sell at 1215 stop market” (10% below the entry price). Then as price moves favorably, you move the stop price so that it is always 10% below the most favorable price seen since starting the trade, but if price moves unfavorably you don’t move the stop until price moves favorably again.

continued tomorrow ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Protecting Profits With Trailing Stops

Literature about trading often advise to “let profits grow using a trailing stop”.

Wikipedia says that “a trailing stop loss is a slightly more complicated version of the stop loss order in which the stop loss price is set at a fixed percentage or value below the market price. If the market price rises, the stop loss price rises proportionately, but if the share price falls, the stop loss price doesn't change. That method allows the investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain, and without requiring paying attention to their investment on an ongoing basis.”

Fixed percentage and fixed value are only two versions of the trailing stop. This week’s series of articles examine different ways of applying a trailing stop to protect profits.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Order Entry Is A Portal Between Metaphysical Forces and Trading Profits

This is the fifth in a series of articles that started Monday, October 23, 2006 with an article entitled “Limit Orders & Market Orders”.

Order entry is necessary for trading profits regardless of whether you use technical analysis, fundamental analysis, psychic readings, or some other metaphysical routines.

After you finish praying, meditating, mentally rehearsing, getting in touch with your emotions, bringing your inner trading guru to the forefront, and other metaphysical protocols needed for trading success, you still have to enter orders to get trading profits.

Order entry is the portal through which metaphysical forces responsible for trading profits and losses cross into the physical realm. Order entry is the primary physical action you take that result in trading profits and losses.

Luckily, order entry in trading eMini Stock Index Futures is more straightforward than for trading options. There’s no eMini order entry equivalent of a Triple-Bypass-Condor Put-Call Strangle Option order.

Check with your broker for the types of orders they accept for trading eMini Stock Index Futures. Also refer to the following literature provided by the exchange where the eMini’s are traded.
http://www.cme.com/files/intro_fut_opt.pdf
http://www.cme.com/edu/course/resources/ordertypes9725.html

We'll chat again next week ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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More Orders

This is the fourth in a series of articles that started Monday, October 23, 2006 with an article entitled “Limit Orders & Market Orders”.

Here are some more order types. Except for the first two, the remainder are not used in trading eMini Stock Index Futures and appear here only as a matter of historical curiosity.

Cancel-Replace Orders

This is sometimes called “Cancel Former Order”. This is an order that has the effect of canceling a previous order and replacing it. For example, let’s say you want to sell at 1350. But later you change your mind and decide to sell at 1349. To do that you send a Cancel-Replace Order in which you cancel your first order and substitute the new order.

Good Till Cancelled (GTC) and Good For The Day (Day) Orders

My broker says that all orders for trading eMini Stock Index Futures are only “Good for the Day”. That means all unfilled orders expire at 4:15 p.m. ET (New York time) each day.

But according to a brochure from the exchange where the eMini’s are traded, namely the Chicago Mercantile Exchange, they do allow GTC Orders. Therefore, you should check your account everyday after 4:15 p.m. ET to ensure that your orders actually expired, if that is what you expect.

Fill or Kill Orders (FOK)

FOK is not a misspelling of an expletive often heard around institutional trading departments.

FOK orders were used when trading was done through live floor traders. It’s obsolete and not used in trading eMini Stock Index Futures.

According to a CME brochure, “A FOK order instructs the broker to make one attempt to bid or offer the order and, if not filled immediately, cancel the order. The customer placing the order may be on the telephone while this attempt is made, thereby making it necessary for the runner to wait for the broker to try to fill the order and then notify the phone clerk of its status. FOK orders are written very close to current trading levels and are intended to be sent to the trading floor without delay.”

Disregard Tape Order (DRT)

DRT Orders are not used in trading eMini Stock Index Futures.

According to a CME brochure, “A DRT order is a discretionary order. These orders may also be referred to as Market Not Held orders. The filling broker treats a DRT as a special order, using his expertise to try to obtain the best possible fill. The broker can take his time in filling a discretionary order.”

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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OSO & OCO Orders

This is the third in a series of articles that started Monday, October 23, 2006 with an article entitled “Limit Orders & Market Orders”.

One Sends The Other (OSO)

This is used to send a second order contingent on another order being filled.

For example, let’s say you intend to buy. And if filled, you intend to enter a stop loss order. To carry out those intentions you can use this order, the OSO.

First you enter your buy order. That can be in the form of a lowball Limit Order or a Stop Limit Order. For example, you want to buy at 1350. To do that, enter “Buy at 1350 Limit”.

Second, if and only if the first order is filled, you send a Stop Market Order below the current price specifying the price at which you want your Stop Market Order to take effect. For example, you bought at 1350 and you want to limit your loss to 5 points. To do that, enter “Sell at 1345, Stop Market”.

Combining the two, you enter an OSO Order in which the Second order is sent if and when the First order is filled.

A major benefit of OSO Orders is that they relieve you from babysitting your First order. It enables you to put your trading on semi-automatic. Not every broker accepts OSO Orders.

One Cancels The Other (OCO)

This is used when you intend to enter two concurrent orders and intend that if one of them is filled, the other one is to be cancelled.

OCO orders are usually a pair of orders in the opposite direction of each other. For example, let’s say you know an important government report is going to be released tomorrow. You believe that the report will impact the market strongly but you don’t know in which direction. You want to buy if prices go up and you want to sell (short) if prices go down. To do that, you use an OCO order having two parts.

For example, let’s say the S&P futures today had a high of 1390 and a low of 1380. You expect a government report to come out tomorrow and you expect it to move the market one way or the other, but you don’t know which way. Therefore, you use an OCO order.

One part of it would be an order to “Buy 1391 Stop Limit 1392”. You want to buy if prices exceed yesterday’s high of 1390, in this case at 1391. You want to prevent yourself from getting a bad fill so you limit the maximum you’re willing to pay to 1392. You might not get filled, but you prefer that to an uneconomical fill.

The second part of this OCO order would be an order to “Sell 1379 Stop Limit 1378”. You want to sell (short) if prices fall below yesterday’s low of 1380, in this case at 1379. You want to prevent yourself from getting a bad fill so you limit the minimum you’re willing to sell to 1378. You might not get filled, but you prefer that to an uneconomical fill.

A major benefit of OCO Orders is that they enable you to put your trading on semi-automatic. Not every broker accepts OCO Orders.

More Combinations

You can even combine OSO and OCO orders in combinations limited only by your imagination.

However complicated order entry gets for trading eMini stock index futures, they’re not anywhere nearly as complex or have as colorful names as orders for trading options. There’s no eMini order equivalent of a Triple-Bypass-Condor Put-Call Strangle Option order!

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Stop Market & Stop Limit

This is the second in a series of articles that started Monday, October 23, 2006 with an article entitled “Limit Orders & Market Orders”.

Stop Market Order

There are two kinds of Stop Market Orders in trading eMini Stock Index Futures. One for buying and one for selling.

A Stop Market Order to buy becomes an order to buy at market when a specified price becomes part of the bid x ask quote.

A Stop Market Order to sell becomes an order to sell at market when a specified price becomes part of the bid x ask quote.

Usually, Stop Market Orders are used on two occasions. One is to exit a position with a loss before the loss gets worse. The second is to lock in an accrued profit to prevent the profit from slipping away.

For example, suppose you bought at 1380 and the current market price is 1385, which means you have an accrued profit of 5 points.

You can enter a Stop Market Order to limit the amount of loss in case prices move adversely. For example, let’s say you want to limit your loss to just 2 points. To do that, you enter an order to “sell at 1378 stop market.” If the price quote becomes 1378 bid, your order becomes an order to sell at market.

Also, you can enter a Stop Market Order to protect accrued profits in case prices move down instead of continuing to go up. For example, let’s say you want to protect at least 2 of the 5 points of accrued profit in this example. To do that, you enter an order to “sell at 1382 stop market”. If the price quote becomes 1382 bid, your order becomes an order to sell at market.

Here's a beneficial way to use Stop Market Orders. When you first enter into a position, you can enter a Stop Market Order to limit your losses. Then as prices move favorably, you change the Stop price so that it's effect is to protect accrued profits from slipping away. This is called a "Trailing Stop".

Stop Limit Order

These work in the same way as the Stop Market Orders except that your fill price is limited by the price you specify. That means you have to specify two prices: the stop price and the limit price.

A Stop Limit Buy Order becomes a market order to buy when the stop price you specify becomes part of the bid x ask quote. However, you will not be filled at any price higher than the limit you specify. For example, let’s say the current price is 1380 and you are willing to buy only if there is enough momentum to carry the price up to 1381 but you don’t want to pay any more than 1382. To do that, you enter an order to “buy at 1381 stop, limit 1382”.

A Stop Limit Sell Order becomes a market order to sell when the stop price you specify becomes part of the bid x ask quote. However, you will not be filled at any price lower than the limit you specify. For example, let’s say the current price is 1380 and you are willing to sell only if there is enough momentum to carry the price down to 1379 but you don’t want to sell for anything less than 1378. To do that, you enter an order to “sell at 1379 stop, limit 1378”.

Usually, Stop Limit Orders are used to enter into a new position. They are not usually used to exit with a loss or to exit to protect accrued profits because they might not get filled due to the limit you place on the order.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Limit Orders & Market Orders

This week’s series of articles is about types of orders you can use when trading eMini stock index futures.

An article on types of orders may seem trite to expert traders.

But for beginners and others accustomed to safer endeavors (such as operating a mine sweeper), the type of orders necessary for trading e-mini index futures profitably is bewildering.

Limit Order

This specifies the price at which you want to buy or to sell.

I sometimes use these to open a new position in S&P futures and often use these to take profits on S&P futures.

For example, “Buy at 1375.00 limit” means you want to buy for 1375.00 or less.

If the price at the moment you enter the order is more than the amount specified in the limit order (e.g. more than 1375.00) then the order does not get filled until/unless prices drop down to the limit price (e.g. 1375.00).

But if the price at the moment you enter the order is less than the amount specified in the limit order (e.g. more than 1375.00) then the order gets filled immediately at whatever is the “ask” price at that time.

Market Order

“Market Order” means:

(a) if you’re selling, you’re willing to sell at the current bid price at the time of your order;

(b) if you’re buying, you’re willing to pay the current offer (sometimes called the "ask") price at the time of your order.

Literature from the field of stock trading often warn against using market orders. That’s because back in the bad old days when people instead of computers filled orders, some of the people involved would “game” your order.

For example, your broker or people at the trading exchange would hold your order while they buy-and-sell stocks for themselves or other customers. At the end of the day or when they feel they can't hold your order any longer without getting caught, those cheaters would give you the worst price they have during the time period during which they hold your order! They assign the good prices to themselves and their favorite customers.

The eMini S&P futures are completely computer traded and do not involve people unless you give your order to a live broker. The cheating by people involved in stock trading can’t occur in computer based direct-to-the-exchange trading. This honesty is a main attraction of the S&P futures.

Whatever "cheating" goes on occur in different ways, a subject matter for another article (or book!).

The eMini S&P futures during regular trading hours (9:30 a.m. ET to 4:15 p.m. ET) are highly liquid. The difference between the bid and ask price is almost always only 0.25 between those times.

Therefore, I often use Market Orders when trading eMini S&P futures.

Even on highly volatile days with heavy volume (e.g. FOMC announcement at 2:15 p.m. ET), the spread is fairly tight. The problem on those heavy volume occasions is that prices move extremely fast so that you might end up with a fill far from where you thought you might get filled.

Tomorrow, I’ll write about how you can ensure that you don’t get filled on a market order at a price too far removed from the price you expect...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Waiting in 7 Steps

Here’s the Tony Robbins routine for enabling yourself to wait instead of prematurely ejaculating into a trade. There could be other ways of doing it, this isn't the only way. This just happens to be the way that works for me.

1. Get leverage. Imagine all the benefits you’ll get by waiting. Those include more money, more winning trades, leisure time, etc. Then imagine all the detriments you avoid by waiting. Those include losing money, more losing trades, wasting your time, getting stressed, etc. Decide you'd prefer to get the benefits of waiting instead of suffering the detriments of not waiting.

2. Get precise about when you’ll enter a new trade and when you’ll exit a position. See yesterday's blog article about that.

3. Interrupt the old habit of entering or exiting recklessly/prematurely. Imagine yourself feeling tempted to do that. Then immediately do something to wreck the pattern. For example, jump up and spin around until you drop!

4. Install the new habit through repetition. Imagine yourself waiting despite temptation. Imagine yourself leisurely waiting throughout the day, day-after-day if necessary, until your entry signal occurs and staying in a profitable trade until your exit signal occurs.

5. Reinforce each time you get it right or almost right. Celebrate. Congratulate yourself. Bribe yourself. Focus on just doing it right just for today, don’t worry about doing it long term. Long term success is made up of consecutive days of getting it right one-day-at-a-time.

6. Don’t beat yourself up if you don’t get it perfect. Forgive yourself. Just notice and resolve to stick to your plan next time.

7. Mentally rehearse doing it right. Rehearse everyday before you trade. Do 10 repetitions before the trading day starts. Do some for fun during the trading day.

We'll chat again next week...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Precisely What Are You Waiting For?

This is the fourth in a series of articles that started with the October 16, 2006 article entitled “How To Wait”.

Get precise about your entry and your exit.

Write a precise description of your entry criteria. If you know precisely what you’re waiting for (to enter), you’ll enhance your ability to WAIT for it. If you don’t know precisely what you’re waiting for (to enter), you might get enticed into entering a trade that you shouldn’t be in.

For example, your entry signal might be price exceeding a certain number by 1 point.

Write a precise description of your exit criteria. If you know precisely what you’re waiting for (to exit), you’ll enhance your ability to WAIT for it. If you don’t know precisely what you’re waiting for (to exit), you might get enticed into exiting a position that you should be staying with.

For example, your exit signal might be MacD crossing it’s average line.

This aspect of waiting is like taking the bus. You need to know precisely which bus to get on. Then you wait until that bus arrives and you pass up getting on other buses.

Also, you need to know precisely which stop to get off at. You wait until you arrive there, staying on the bus through the other stops.

If you don’t know your entry (which bus to get on) or your exit (which stop to get off at), you might accidentally get into a trade you don’t want or get out of a trade at the wrong place, thereby giving up too much accrued profits, giving up too much potential profits, or taking a bigger loss than you otherwise would.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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While You're Waiting...

This is the third in a series of articles that started with the October 16, 2006 article entitled “How To Wait”.

Here are some ideas about what you can do while you distract yourself away from trading when you don’t have an entry or exit signal:

-do muscle toning exercise
-build your vocabulary
-build your foreign language vocabulary
-listen to music
-meditate
-plan a vacation
-bake cookies
-practice putting
-practice walking on hot flaming coals
-knit a scarf

Avoid getting tempted into a reckless trade by avoiding:
- financial news in any format (newspapers, radio, television, internet or whatever)
-sneaking a peak at price charts
-toxic people (see the July 18, 2006 article entitled "Profit By Skipping Out, 6")

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Waiting When DayTrading

This is the second in a series of articles that started with the October 16, 2006 article entitled “How To Wait”.

Daytraders need to wait too. If you're a daytrader, you can use the ideas on waiting in this week's series of articles provided you make one alteration.

Instead of shutting down the computer, just set alarms for certain price levels or indicator levels. Tradestation has that feature. If you intend to daytrade you need trading software that allows you to set alarms.

Then during times when the alarm is silent, follow the suggestions from this week’s series of articles on how to wait.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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How To Wait

Last week’s series of articles (beginning with the article of October 9, 2006 entitled “You Can’t Hurry Love or Winning Trades”) described how super traders wait to enter trades and wait to exit with profits.

This week’s series of articles features answers to the question of “how to wait”.

The following discussion applies to trading in all time frames except day trading.

One way to wait is to distract yourself away from trading during market hours.

Shut off your computer or put it on “standby mode”. If you have Windows XP, you can do that in Power Options. Click “Start” on the lower left corner of the video screen, select “Control Panel”, select “Power Options”, select “Advance”. Then set the “Sleep Button” to either “Ask me what to do”. Then when you hit the Sleep Button on your keyboard, you see a selection menu including “Standby”.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Hurry Up & Wait

This is the fifth in a series of articles starting with the article of October 9, 2006 entitled “You Can’t Hurry Love or Winning Trades”.

Waiting is an open secret because making it public does not hurt the super profitable traders. They know most people cannot wait. They know that more than 80% of the population of wannabe traders cannot wait to enter or to exit trades.

That’s why 80% of the population of traders lose money while only 20% make any money.

Super profitable traders are waiting to relieve money from the wannabees who can't wait.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Jesse Livermore Says Sit

This is the fourth in a series of articles starting with the article of October 9, 2006 entitled “You Can’t Hurry Love or Winning Trades”.

The second type of waiting is waiting to exit an open position.

“Let your winners run” is half of the golden rule of trading.

In the famous book entitled Reminiscences of a Stock Operator, the author (in writing about Jesse Livermore) says “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!

It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level, which should show the greatest profit.

And their experience invariably matched mine -- that is, they made no real money out of it.

Men who can both be right and sit tight are uncommon.

I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

Next week, I’ll chat about how to “sit” on a profitable position.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Waiting by Skipping Out

This is the third in a series of articles starting with the article of October 9, 2006 entitled “You Can’t Hurry Love or Winning Trades”.

A subset of “waiting to enter into a new trade” is skipping out on trading when you are experiencing circumstances that typically lead to losing trades.

See previous articles in this blog such as the series starting with the July 10, 2006 article entitled “The Simplest Way to Increase Profits “.

Skip out on trading when you are in circumstances that disable you from trading properly. Wait until you feel confident before trading.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Waiting To Open A Position

This is the second in a series of articles starting with the article of October 9, 2006 entitled “You Can’t Hurry Love or Winning Trades”.

One type is waiting to enter into a new trade.

Market Wizard Van Tharp calls this type of waiting “stalking a trade”. After studying hundreds of super successful traders/investors, he noticed that this was one of the 10 things super successful traders/investors had in common with each other.

He teaches this in his course called The Peak Performance Course For Investors & Traders. Also, he mentions this in a footnote in his book Financial Freedom Through Electronic Day Trading.

Here’s a metaphor illustrating what’s involved in this type of waiting.

Have you ever watched participants at a martial arts tournament? The tournaments are divided in a way that participants compete only against others with similar skill rankings. For example, the beginners (white, yellow and orange belts) compete only among themselves, the intermediate participants (green, blue and brown belts) compete only among themselves, and the experts (black belts) compete only among themselves.

Notice how a beginner fights. Usually, he starts punching and kicking while his opponent is on the other side of the mat far away from him. He's punching and kicking the air while he is still far away from his opponent. He might also be violently yelling and screaming while doing that. He attacks while his opponent is still out of range and cannot possibly be touched. He’s eager to attack. No point scored for that effort, no matter how hard or fast the kick since the opponent is not anywhere near striking distance and has ample time and opportunity to escape the attack.

Then notice how an expert or how a good intermediate participant fights. He waits. And waits. And waits some more. He sizes up his opponent. He observes how his opponent moves. Then he swiftly steps into (i.e. moves closer to) his opponent to get within striking distance to ensure that his chance of success is very high BEFORE doing any punching or kicking. Also notice no yelling or screaming until a split second before impact. Point scored, opponent defeated, all in a split second.

That’s what traders need to do. Wait. And wait. And wait some more. Size up the market. Observe how the market moves. Then swiftly and quietly make your move only when your chance for success is very high BEFORE entering an order to buy or sell.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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You Can't Hurry Love or Winning Trades

Remember Diana Ross & The Supremes music group? One of their greatest songs was “You Can’t Hurry Love”. Phil Collins and the Dixie Chicks also released versions of the same megahit song.

Listen to a sample clip (click here and scroll to bottom where it says "Sample") .

Here’s some lyrics from that song by The Supremes:

“You can't hurry love
No, you'll just have to wait
She said love don't come easy ..."

Replace the word “Love” with “Winning Trades” and you have one of the most powerful secrets of the super profitable traders.

Waiting is a powerful yet open secret of success of the super profitable traders. Many super profitable traders have talked about it in interviews or in their own publications.

Super profitable traders engage in two types of waiting.

We'll chat again soon ... You'll have to wait...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Testing Different Bars

This is the last in a series of articles that started with the October 2, 2006 article entitled "Trading With Charts".

So do some experimenting. Take a look at your entry and exit signals using different types of bars. They are a variable that might make a difference since they organize and display the same trades in different ways. See if it makes any difference to your trading results by testing your strategy with different types of bars such as OHLC, Candlesticks, Tick, Volume and Range bars.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Three More Types of Bar Charts

This is the fourth in a series of articles starting with the October 2, 2006 article entitled "Trading With Charts".

This article talks about 3 types of charts that look like the OHLC charts that are commonly available except that the information represented by each bar is different and except that most chart providers do not yet provide them.

Tick Charts can be either a line or a bar chart. A “tick” in this context is one transaction, a buy-sell, in the instrument charted. When a tick chart displays a line connecting dots, each dot is supposed to represent just one single transaction.

When a tick chart displays bars, each bar in a tick chart represent a specific number of transactions (buy-sells) regardless of the time it took to complete those transactions. The bar’s top indicates the high price; the bar’s bottom the low price. Dashes on the bar are used to indicate the open and close price.

For example, you can set your tick charts to let each bar represent 500 transactions.

One problem with tick charts is the way some exchanges lump some transactions together and publish them as a single transaction. The result is that in a 500 tick chart, one bar might really be 710 transactions, for example, instead of exactly 500 transactions while the next bar in the same chart is actually 653 transactions.

So if your trading system involves making decisions based on the number of transactions, your decisions will be based on inaccurate information. The implication is that your decisions are inaccurate too.

Volume bar charts are similar to tick charts. The difference is that each bar in a volume bar chart represent a specific number of shares or contracts bought and sold. That’s regardless of the time it took to complete those transactions. The bar’s top indicates the high price; the bar’s bottom the low price. Dashes on the bar are used to indicate the open and close price.

For example, you can set your volume charts to let each bar represent 500 shares or contracts.

Another type of bar chart is one in which each bar represents a specific price range. You can set the range at, for example, $1.00. If you do, then the next bar does not begin to form until prices move outside the range of the current bar. And the next bar will include only prices within a $1.00 range between the high and the low price. That’s without regard to the time it takes for the next bar to start or the volume of transactions in each bar.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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Irrelevant Bar Features

This is the third in a series of articles starting with the October 2, 2006 article entitled "Trading With Charts".

Candlestick bars provide more information than the OHLC bars. Sometimes too much information to the extent of being misleading.

Let’s say you have a system for entering and exiting trades based on the High or Low of a bar, but that the relationship of the Open to the Close is not part of your system.

You could apply your system to either the OHLC bars or to Candlestick bars. Both provide all the information you need for your system.

The Candlestick bars goes a step further and color codes the bars distinguishing those whose Close is higher than the Open from those whose Close is lower than the Open. That extra bit of information can be ignored. But if you sometimes ignore it and other times get influenced by it, then that extra bit of information is triggering you into inconsistent application of your system.

Trading using a system requires consistent application. Inconsistent application will ruin your results or make any study of the results invalid and unreliable.

Beware of the extra information in your charts that are not part of your system. Better to eliminate those extra bits of information so you can apply your system consistently. You can do that by choosing a type of bar chart that has just the amount of information relevant to your system and that does not contain extra potentially misleading information.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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OHLC & Candlestick Bar Charts

This is the second in a series of articles starting with the October 2, 2006 article entitled "Trading With Charts".

Charts are a way of organizing data about trades that have occurred.

OHLC bar charts are the most commonly available from data providers. In an OHLC chart, each bar represents the price range during a specific segment of time. For example, over a 5 minute segment of time, the bar shows the high and low during that segment of time. Additionally, the price of the first and last trade during that segment of time is shown by a dash mark on the bar.

Here's an example (click here) of an OHLC bar chart.

Candlesticks are another commonly available bar chart. The bars in a candlestick chart include the information presented in the OHLC bar except with color coding. The price range between the open and close are colored. Additionally, candle wicks are used for part of the price.

If the open was higher than the close (prices went down over time), then the price range between the open and close are colored red, while candle wicks in the bar depicts the price range from high to open at one end and low to close at the other end.

If the open was lower than the close (prices went up over time), then the price range between the open and close are colored green (or merely outlined but not completely colored), while candle wicks in the bar depicts the price range from high to close at one end and low to open at the other end.

Here's an example (click here) of a candlestick chart. The color used by Yahoo for this candlestick chart are blue instead of red and black outline instead of green outline.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
eMail me Comments

Trading With Charts

Do you use technical analysis in your trading? That is, do you make decisions about buying and selling based on what you see in a price chart?

If so, consider this. There are different kinds of price charts. Today’s article is the first in a series that looks into how the price chart itself is a variable in your decision making.

We'll chat again soon ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
eMail me Comments