my journal

[Yamato]

What a mess... I should've gone to work today. What a mess...

 

[Yamato]

I'll go smoke a cigarette. In the meanwhile make it up to me. Yes, I will forgive you. But you gotta go up to 78.20.

 

[Yamato]

Oh yeah... margin call now. And you think you're going to rise after I close you? I will close my EUR and keep you open. You asshole.

 

[Yamato]

Oh god... I was right on everything, and I lost 2000 dollars just because I kept staring at the screen for 15 hours... oh man... do i suck or what?

Closing my CL positions in 2 minutes with a staggering loss of 2000 dollars.



The famous 2000 dollars I told you about. All my discretionary gains of one month wiped out in 2 hours, on a trade made at the last minute, with no planning whatsoever, and doubling up when I saw I was losing.

Now 4 contracts on the EUR, to try and recoup my 2000 dollars loss. Do I suck or what...

 

[Yamato]

And yet... you know what? It makes me laugh. I spit on myself, on money and everyone around me. **** money, **** everyone. I don't give a ****. **** me. But most of all: **** discretionary trading.

 

[Yamato]

As if it weren't enough. Now there's a margin call on the EUR. And I am down 250 dollars on that as well. So, instead of doing everything perfectly, and having 500 dollars or more profit, now I am ending the day with 2300 dollars less. And keeping 2 contracts open during the night. If I'll get lucky, as happens in these cases, I'll make it all back by tomorrow morning. 100 ticks down means 2500 dollars. If I don't get lucky, I'll probably stay with this 2300 dollars loss. I don't think I'll lose more.

If I'll make it all back by tomorrow morning, I basically wasted a day at home. More or less like playing videogames. Same emotions. It feels like playing risk for a whole day and not winning one game, that's all. And probably this year, for my 12th year in a row, I won't have to worry about paying any taxes. Wow, at least I don't have to worry about that.

 

[Yamato]

I'm going to ride this sonuvabitch like a wild horse in the coming weeks. It's going to be fun. I want all my money back. I don't care if it's the CL who took my money - they're all part of the same gang. I'll just focus on one of them. I want all my money back. I don't care about the others. But the EUR is not getting away. I want all my money back, and more. I want to get to 20k. Sonsofbitches. I'll focus on the EUR. The method is clear. It is sound. I just have to follow it. Maybe with just one contract, or two at the most. I want my money back, you assholes.

I'll obsess about the EUR, I'll follow him wherever he goes. I'll learn his habits, his weaknesses, I want to know everything about his family. Bottom line: I want my money.

 

[Yamato]

OVERSTRETCHED METHOD

ENTRIES:
A) Set up a month of hourly candles with pivots
B) Keep a discretionary eye on correlations with ES-CL, GBP and ZN-GBL

C) In order to make the trade, these 3 requirements must be met:
1) overstretched in ticks (>150 ticks top-bottom)
2) overstretched in hours (>18 hours going up or >12 hours going down)
3) time is right (9-11 am or 6-10 pm CET)

D) In order to make the trade, at least 1 of these 2 requirements must be met:
1) pivots (touched S2 or R2)
2) reversal pattern (increasingly shorter legs, do not enter after a tall candle)


EXITS:
Close position after >9 hours and 6-10 PM or 5-9 AM

 

[Yamato]

Good link on pivots (i'll even try to read the whole page):

Day trading forex futures with pivot points, by Eric Utley:

...is a full-time trader with over a decade of experience in equities, equity options, futures, and currencies. He specializes in trading currencies, using a combination of quantitative, technical, and fundamental analysis. He is the lead contributor to INVESToolsCT.com, manages a currency trading blog, produces educational programs, and hosts a weekly online seminar.

I'll write more about it when I'll read it.

Actually I have time now. I'll start quoting the things I understand and find meaningful.

Spot vs. Futures

To be sure, there are a some big differences between the contracts that trade in the spot Forex market and the FX futures. Perhaps the biggest -- and arguably most important -- difference is that spot Forex contracts trade over the counter at no particular central location, while FX futures clear at the CME. The central clearing and guarantee of counterparty credit by the CME are huge benefits of FX futures over spot Forex contracts.

...

But for the most part, I trade the currency futures. That's because the cost of trading futures is, in most cases, lower than trading spot Forex. I've found futures cost about $20, or less, per round turn, while the spot Forex contracts cost between $30 to $50, and up, per round turn. The lower cost of trading currency futures is why I use the instrument in all of my day trading strategies, including the pivot point methodology.

(But please know that you can apply spot Forex contracts to the methodology that I'm about to show you.)

Pivot Points

Pivot points are a popular tool used by futures traders in all sorts of markets, ranging from equity indices to crude oil. And, sure enough, pivot points are readily applied to trading currency futures.

Pivot points are support and resistance levels derived from the previous period's high, low, and closing values. There are a variety of pivot values with which to trade, including monthly, weekly, and daily values. You could even calculate hourly values. When determining which period to trade with, you've got to consider your time frame as an individual and your particular style. I'll use daily pivot points for the purpose of this article since the focus is day trading.

...

The pivot values are plotted as horizontal levels which, in turn, serve as support and resistance. The pivot point itself can be thought of as the day's mid-point, or fulcrum. It's where the buyers and sellers meet to determine the day's trend in a currency pair. The support and resistance levels that are plotted around the pivot point are just that: potential support and resistance.

Ok, that's great. So that means if we're above the middle line the trend is up, and viceversa. That's easy. Except it could be delusional as well, because there's so many lines from pivots that we could make it say anything. But he knows his stuff and says they work. This guy is great. I wish I had more patience as a reader.

The power of pivot points is unleashed when you follow an unfolding trend during the day, and use the pivot values to measure the magnitude of trend. Additionally, the pivot points can be used to determine entry points into a trade. Applying simple breakout and breakdown entries around pivot points is a powerful way of using the tool.

An example of following the trend of the day as it unfolds, and entering trades on the break of pivot values, is illustrated on the 5-minute chart below of the JPY/USD contract. In this example, the Yen began the day near its pivot value, rolled over from R1, and proceeded to breakdown below the pivot point, S1, and S2. The pair dropped by about 60 ticks, providing ample opportunity for a day trader to make money on each breakdown below support. These types of intraday trends unfold a few times throughout the trading week, and they are relatively easy to exploit by following the futures contract through its pivot values.

"Relatively easy"? **** it, man. I'll just focus and obsess about pivots on the EUR from now on. I need nothing else.

Pivot Point Tips And Tricks

Trading with pivot points is not a big secret. Floor traders and dealing desks have been applying the methodology for decades in the currency market. But what separates the profitable traders from the losers is the simple act of following the trend of the day, cutting losses short, and letting profits run to the next pivot value. In addition, there are a few observations I've made over the years that I can add to the simple truth of following the trend.

The first tip I want to share is that the best trend days usually unfold when the currency begins the trading day near its pivot point. You might have already made this observation in the two above examples of the Euro and Yen. If you didn't, then take a second and jump back to the above charts, and note how the Euro and Yen began the day at or very near their pivot points. There are usually two or three days out of the week during which the majors such as the Euro, Yen, Pound, and Franc begin trading at their daily pivot. These are the days to look for a big trend to unfold.

Ok, here he seems to talk exactly about my strategy, what an honor:

If the currency that you're trading begins the day far away from the pivot, either below S2 or above R2, then it's probably a day that you want to walk away from. When a currency opens the day at one of the daily pivot extremes, it usually spends the rest of the session gyrating around that level. Avoid trying to trade a reversal of the overnight trend. Occasionally it might occur, but more often than not a big overnight trend will stall out at R2 or S2. The temptation is there to try to squeeze out a small profit, or bet on a reversal of the overnight trend. But the reality is that these are the days that can destroy a trader's equity.

Wow, check it out - he's totally right about the "gyrating" (but only as far as today).



Yeah, ok, but so far he's not saying to not play the reversal happening from 9 PM CET. He's only saying to not bet on a reversal happening at 9 AM CET, which is when the day in Chicago begins ("Avoid trying to trade a reversal of the overnight trend"). So he's not saying my strategy is crap, at least not yet.

However, today I was wrong, according to what he says. He's just not saying that my overnight strategy is wrong.

You will find two examples below of strong overnight trends leading to massive gaps at the open of New York trading in the futures market. The first is an example of a gap up in the Euro. The pair opened at R2, where it spent the rest of the session. The second example is of a gap down in the Pound. The contract opened below S2, and spent the rest of the day gyrating in a tight range.

These days are best left to the floor traders. In the long run, you'll be better off not even trying to trade during days when the currency futures stage a substantial gap, either high or lower. You'll be better of by waiting for those days when the currency futures open near their pivot points.

But guess what, Eric, your advice is good and I am ready to follow it, since in the morning, except when I have nightmares and eat too many french toasts, I'm at at work. So I can't trade what you're advising against, as I did today. I can't believe you're telling me all this stuff about pivots! Thanks so much.

Here's the last part of his post (I almost quoted the whole thing anyway):

Profit With Pivots

Day trading with pivot points can be applied to the spot Forex market just as they are in the currency futures market. Support and resistance, and the techniques that accompany these price levels, are consistent across all markets. In fact, pivot points have been used across dealing desks for decades in the spot Forex market. To the individual investor, however, it makes more sense to use currency futures when day trading simply because of the lower costs associated with trading futures.

The most important point to remember when applying pivot points to day trading currency futures is to follow the trend of the day, and simply look to enter into an unfolding trend as a pair makes its way through pivot values. Pay special attention to those days when the currency opens at or very near its pivot point. And avoid trading when a contract opens far away from its pivot point, at or beyond S2 and R2 values.

Wow, that tells me a lot about today. Thanks, Eric.

 

[Yamato]

This was all very clear. However, the only thing Eric didn't say is about my overnight strategy. I am not saying let's bet on a reversal of the overnight trend, like I did today. I am now saying let's bet on a reversal of the intraday trend, and I got backtesting results to back it up. So ultimately no one will convince me it's not right.

I don't care where pivots stand with regards to this. If the conditions for the Overstretched method are there at 9 PM CET, I will trade against the (overstretched) intraday trend. At most I lost nothing.

As far as the day, thanks, Eric, because you might just have been the last drop I needed to turn myself into a trend follower. Besides, how am I going to trade a day where price is above R2 or below S2 with pivots since there are no lines to look at? It's simple. The lines are not there so I can't trade anything. But thanks for specifying it.

Which brings me to tomorrow. Now since the pivot formula is high low close divided by 3, then I guess tomorrow we'll be opening near pivot line, cause the 3 things almost coincide and we're still hanging out around there. But then, since we're highly overbought today, I bet you anything tomorrow we'll fall, and that means also pivots are in favor of a fall, because pretty soon we'll be below S2. So tomorrow is my big day, when I'll go to work because i didn't eat any french toasts and I'll recover from my losses, because I'll be at work and unable to screw my trade. The point, Eric, is just that I get my money back.

 

[Yamato]

If these pivots really work as Eric says, and I have a good feeling, I think they're going to be a major turning point in my trading career (as long as they are a turning point for markets). This community he talks about, "floor traders and dealing desks have been applying the methodology for decades in the currency market", is a community I want to be part of. It's like knowing how to read. You know how to read pivots and you make money. That's cause you enter at the start of the move. The others, who don't know how to read, will enter in other places. So everything works fine as long as you can read better than others. I can't believe it was this easy and I never really... I never took it seriously because it seemed too easy. Right... I suck. I suck so badly.

 

[Yamato]

NEW TOTALLY AMAZING EXCELLENT DISCOVERY: TIME USED FOR CALCULATION
Pivots calculated by InteractiveBrokers are neither using the GMT British time, nor CST Chicago time: they're using the opening time at the New York Stock Exchange (NYSE Euronext Holidays & Hours). Who would have ever expected such a thing? I wonder why that is but that's a fact. Maybe because the calculation of pivots began with the NYSE, and that's how everyone is keeping it. And by looking at them, on that time, they work. I'm going to have to keep that in mind. Oh, look, it says the same here: "Note that the high, low and close in 24-hour markets (such as forex) are often calculated using New York closing time (4pm EST) on a 24-hour cycle. Limited markets (such as the NYSE) simply use the high, low and close from the day's standard trading hours".



By the way, let's try to find out how they exactly work and who invented them.


SIMPLE EXPLANATION OF HOW THEY WORK
The formulas are all here. I'll make them simple to myself.

The pivot point ("P") itself is none other than the average of yesterday's high, low and open. Remember: by NYSE time, therefore their validity and calculation goes from 8.30 EST to 8.29 EST the next day.

R1 is P + the distance from P to yesterday's low. Forget people's formulas that start with "2xP..." because that makes it unclear as to what it exactly means.
S1 is P - the distance from P to yesterday's high. Ok? That's all.

Then R2 is P + the distance from yesterday's High to Low.
S2 is P - the distance from yesterday's High to Low. Now forget their ****ing formulas.

The rationale for all this is that today we should move as much as yesterday, that's more or less what it means.


TRYING TO FIND OUT WHEN AND WHO INVENTED PIVOTS
Here's all I could find, here:

Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations.

GOOD LINKS BESIDES THOSE ALREADY MENTIONED
Using Pivot Points for Predictions


REMARK ABOUT YESTERDAY ACCORDING TO PIVOTS
Amazingly if I consider the fact that pivots are calculated and valid 8.30 EST to 8.29 EST, yesterday we followed friday's pivots all day long until 8.29 EST. We bounced against that S2 level, all day long. We were beyond, much beyond the next day's pivots only because the somehow ****ed up calculation that takes place on monday (maybe only for InteractiveBrokers) ignores trading taking place on sunday (see picture below), and only considers the portion of friday's trading. Something seems to be very wrong in this. It ensues that I cannot rely on InteractiveBrokers' pivots from Monday 8.30 EST to Tuesday 8.29 EST.



FOREX PIVOTS (IB SOFTWARE) WORK EVEN BETTER THAN FOREX FUTURE PIVOTS
Sure enough, I kept on researching and found out what was wrong. Guess what. The pivots on forex do not have the problem that pivots on future have (always as far as InteractiveBrokers's software). Guess what. I will now compare the same exact week for the same exact cross rate, the eurodollar. And look at the difference between FOREX and FOREX FUTURES. I'll comment on it later.





A-ha!

1) Check it out how yesterday it all bounced nicely according to pivots on FOREX but it didn't do any such thing on FUTURES: I was clueless all day yesterday as far as pivots. That's for one simple reason: InteractiveBrokers calculation of pivots on futures really sucks between Monday and Tuesday, because they didn't work out anything reasonable to take sunday into account. So from now on I will just use their FOREX pivots.

2) Check out how my getting screwed right now is clearly predictable by pivots on FOREX but once again how clueless I'd be by pivots on FUTURES (the first picture of course). On FOREX they're bouncing on P, whereas on FUTURES they're bouncing on nothing. This is real crap. Thank god I'm a punctilious mother ****er and I checked it out.

BI-WEEKLY COMPARISON OF FUTURES vs FOREX PIVOTS
Now I'll compare a whole two weeks (it won't allow a whole month on FOREX) of FUTURES vs FOREX pivots and see if these sonsofbitches have done as *hitty a job as for the past week - which most likely will be the case due to the problem on friday-monday.





This is really really shocking. This stuff works twice as well on forex pivots as it does on forex futures pivots. Also for the GBP, it's the same exact thing. They work twice as well (overall better on the EUR). I wonder if this is just IB's problem or every broker has the same problems. Basically on forex it bounces twice as much as it does on futures! On forex you see it reversing (minor and temporary reversals, or major and permanent) and there's almost always a pivot level there. On futures, half of the time, there's nothing there. Oh, man... what a totally amazing excellent discovery.

Now, since this is partly a sel-fulfilling prophecy, we better make sure that people are using the right pivots, or else pivots will start being less reliable...! They're almost like a street map, and people are driving by it. Only some people don't know about the map so they're following the others just like sheep. But if the map gets screwed up, thanks to IB and other brokers, and wrong maps start circulating... then it's not going to be as clear in the future and pivots won't work as well.


OFFICIAL THANKS TO MY FRIEND WHO TOLD ME ABOUT PIVOTS

I officially owe some thanks to my friend who told me about pivots, and made me give them another chance. Thanks!

 

[Yamato]

Sure enough... this morning it bounced up for a few hours (zigzagging) as soon as it reached "P" (mind you, from now on I'll be referring to forex pivots rather than forex future pivots). Now it broke through it, and as far as I've learned it will go down to S1. And then I'll exit, totally making up for yesterday's loss. Watch me - I am going to own the world in a few months.

This is one of my last posts on pivots, because I feel bad about giving away such a great tool. And I can't believe either that everyone is talking about it on the web. Oh my god... what a world... what a world... I don't understand very much any more. They work. That's good.

Beware that if I disappear from this journal is only because I finally retired and am swimming somewhere in the mediterranean, because, with this tool, retirement is approaching really really fast.

Also, I don't like to show up and say "today I made 2000 dollars". I'd rather show up to complain and say "today I lost 2000 dollars", so you won't see me here, hopefully.

 

[Yamato]

NEW TOTALLY AMAZING EXCELLENT DISCOVERY:
TIME USED FOR CALCULATION DIFFERS FOR FOREX PIVOTS

Guess what. I was just taking a shower and I had the usual intuition. That's why I am always in the bathroom: to get those intuitions.

I said to myself: what if forex pivots are different from forex future pivots not just in that they take care of "friday to monday" problem, but they even differ in timeframe? Let's double-check just in case... I did, and sure enough: they are totally different.

Forex future pivots used NYSE opening time: 9.30 EST which is 15.30 CET. And guess what. Forex pivots use midnight CET, which means 24.00 CET, which means 8 and a half mother-****ing hours later! No wonder there's such a huge difference and forex pivots work twice as well: because most people look at those, or rather the people moving the markets (for money invested) look at those.

Check it out:

 

[Yamato]

Now, my OVERSTRETCHED METHOD will not have to be thrown away, but heavily revised: it will determine whether there's fuel for another bus stop or not. Pivot levels will be treated as bus stops. And overstretchedness will be treated as fuel. Ultimately I'll have to automate this mother ****ing strategy as well, which sucks because it's a real pain in the ass.

 

[Yamato]

Oh... right... how much more stupid could I be? Of course the forex pivots are the ones that count: because the futures just follow forex. Forex is what counts. Not futures. Let's remember to apply this every other security I am applying pivots on: dow jones, SP, oil, gold...

 

[Yamato]

HOW TO EXPLOIT PIVOT LEVELS? BOUNCING OR BREAKING? AND FOR HOW LONG?

SEVERAL BRIEF TRADES PER DAY (MINUTES LONG)
I am planning to make brief trades (5 minutes), not on breaking through them, but only on bouncing off them, as long as price leading to them is overstretched in favor (how dumb to say... it couldn't be stretched against them, because price wouldn't be going towards them but away from them).

I thought I could consider pivots like bus stops, but i can't, usually (I can't unless the price is highly overstretched, which only happens once a week). But I can count on the fact that a lot of people are considering them so. A lot of people are going to get on the bus thinking that it will take them to the next pivot level. You gotta bet on that, but not believe yourself in the fact that you will get to the next bus stop. There are a lot of false signals: too many. But you can make money on the false signals. Can't keep an hourly timeframe. Need 5 minutes and lens on chart.

FEW LONGER TRADES PER WEEK (HOURS LONG)
Now, there are exceptions: the more you're overstretched the longer you count on the bus moving towards the next bus stop. Say you have them 10 hours overstretched: you can count on them getting to the next bus stop. There's enough fuel cumulated there. If they've been zigzagging, don't count on them getting on the next bus stop upon touching a pivot level.

BUS STOP TO BUS STOP ONLY IF OVERSTRETCHED IN POINTS AND HOURS
You can count on them taking you to the next bus stop only as long as the "overstretched system" parameters are met. Like yesterday: big overstrechedness in points and hours, and then you can count on price getting from one bus stop to another (from pivot level to level).

IT'S LIKE A SPRING: IF YOU DON'T WIND IT, OR A RUBBER BAND IF YOU DON'T STRETCH IT
All futures I am trading, are close to pivot points most of the time. All I have to do is look for the most wound up springs and bet on a reversal. Continuation upon breaking through pivots is like those buses on their second stop and their spring is definitely not as wound up. Like the EUR now: it doesn't know where to go.



Once again, I want to bet on NOT on continuation upon breaking of pivot levels but on bouncing upon touching such levels. This is going to be what I'll do. Like the CL now.



FORMULA READY TO GO: the more bus stops we went through the closer to terminal
One will ask how do we could measure "overstretched". Simple. How many bus stops (pivot levels: if we're falling R2, R1, P, S1, S2) did we go through? 5? In how many hours? Forget ticks. Use the bus stops... or use both. All three: bus stops, hours, ticks (from top to bottom). Depending on those three factors the terminal could be close.

Say: we went through 3 bus stops: the next one will most likely be the terminus.

Another good idea might be (but I am just thinking out loud) to get off the bus at each stop, and get back on the bus at the last minute, once you've found if the bus is going back to terminal or continuing to trip forward.


ON THE "CL" BUS with 2 PASSENGERS
For example, a few minutes ago, I got on the "CL" bus (see picture below) with 2 contracts. Should I get off the bus as we reach this bus stop or hope for it to reach a second bus stop? According to the time of the time, to how much it's been screwing around earlier, I think it will reach a second bus stop, so I will stay on the bus for a second bus stop once it reaches the first one. Or I could let one passenger off the bus. So after all, I am staying on the bus despite the breaking through a pivot level. But one thing I will never do is get on the bus at the second stop. No sir. I am either already on the bus or I won't even get on it. There's other markets to exploit, from terminus.

 

[Yamato]

But you know what? Forget everything I said. The CL and all the other futures do not look reliable at all as far as pivots. Not even the GBP. The only one that does look reliable is the EUR. And to that I still have to apply the overstretched requirements or I can't even trust pivots for EUR. So pivots after all seem like a big ripoff, except on the EUR and when it's heavily overstretched.

When that happens, and we're close to that situation, you place a limit order near the pivot level (slightly before) where it's supposed to bounce off, and leave. If it gets executed, you hold for say 3 hours and then take whatever you made. Then move on with your life. No trailing stops, nor stoplosses. Just time exits.

 

[Yamato]

NEW VERSION OVERSTRETCHED METHOD

ENTRIES:
Set up a month of hourly candles with pivots on EUR FOREX

These 3 requirements MUST be met:
1) overstretched in ticks (>150 ticks top-bottom)
2) overstretched in hours (>24 hours going up or >12 hours going down)
3) time is between 3 and 10 pm CET

At least 1 of these 2 requirements must be met:
1) pivots (touched S2 or R2)
2) reversal pattern (increasingly shorter legs, do not enter after a tall candle)


EXITS:
Close position after >9 hours and 5-9 AM OR earlier if: you reach a second pivot level (e.g.: from P to R2) or you cover >50% of the previous move (that is at least 75 ticks).

 

[Yamato]

I SUCK...
Today I lost about 1000 dollars with clueless trades on EUR, not being overstretched and therefore wrong trades, and on CL, that was a bit overstretched but wasn't reliable, for many reasons: time, not overstretched enough, pivots unreliable... Today I sucked badly, just like yesterday, and because of impatience and superficiality. I am so hard-working and serious when it comes to posting youtube videos, and when I place trades I am totally superficial, and light-hearted. Big problem.

Remember how I complained about being stuck at 10k forever? Well, I solved that problem. Now I am at 9k. I suck.

... BUT MY SYSTEMS ARE GOOD
But I did do one thing right. Good money management. That's my consolation. My system in these past two days lost thousands of dollars, but I wasn't trading it, because I implemented new money management rules, essentially based on drawdown and maximum loss.

My money management is based on drawdown: I invest more on those systems that have a good ration of forward tested profit over highest drawdown (between forward and back tested drawdown).

My risk management (I may use the term loosely) is instead based on the fact that no matter how good the above ratio is, I won't any systems to trade if their maximum forward loss is more than 5% of my capital. This way I am very very protected from any surprises.

However: I am missing patience. Patience to see my capital grow and even patience to wait for those good opportunities that my overstretched discretionary system could seize.

The rule should be that I make at the most 1 trade per day. Other than this, it's just gambling, or rather compulsive gambling.