By Gabe Velazquez, Online Trading Academy E-minis Instructor
In this newsletter, I'd like to share with readers a fantastic email I received from Jon, a student who attended an E-mini class I taught at Online Trading Academy Irvine recently. Communications like this are what make being a trading instructor so gratifying. The following are excerpts from Jon's email:
Hi Gabe,
Thank you so much for your class and motivation on teaching us how to trade E-minis. You really did a great job and I could tell you gave a lot of yourself by teaching and stressing to us the important things about trading (good trading habits, discipline, embracing risk and uncertainty, paying the market a little and getting at least 3-1 winners to losers). You convinced me that's the way to go.
Just wanted to tell you about a trade I made today. I tried to follow the techniques you taught us in class and it worked out pretty well.
ES (E-mini S&P) opened today (Tuesday) at 942.25 and I looked at the previous (Monday) day's high of 46.25 and today's high of 45.25 (the Globex overnight high was lower). I put in a limit order to short (in between both highs) at 45.75 (1 contract with a stop of 8 ticks or $100) at 47.75 and a profit target of 39.75 or $300 (3-1 winners to losers) in the morning about 8 a.m. or so and waited.
I didn't trade and took a break from 8:30 to 11:30 (like you said) and came back. The limit order triggered at 45.75 and the high was 47.00 (so my stop held). It went down to 41.50 about $200 profit, so I just moved the stop up to break-even. It went up to 45.25, and then made a big jump quickly down to 41-42. I took the profit-limit order off because I thought it might go lower and I might make more profit than 3-1. Just before 1pm, I moved the stop to the $50 profit and it went down some more. I kept moving the stop down to the $100 profit, $150 profit, $200 profit and then I held on between 1:00 p.m. to 1:15pm. It went down more, and finally at about 1:13 p.m. it got to 39.25. This is where I got out - making $325 (a little over 3-1 profit). I'm happy with the results, and will continue working to ingrain these habits.
I'm still doing paper trading in E-minis (and swing trading for real in my IRA). Still, I felt like I was in control (I was willing to lose $100-150 on one trade to try to make $300-450) and it worked out pretty well. Not sure if I could have done anything different (maybe put the short at 46.25 or 46.50, same as Monday's high) instead of 45.75, so I had more cushion on my stop, but it worked out. Do you know anything else I could have looked at or done better?
Thanks again.
Jon M.
Let's look at Jon's trade in the chart below. First, he found a low-risk entry at the prior day's high (which also happened to be an important inflection point or resistance level). He then assessed the risk-to-reward and deemed it to be appropriate. Once this was done, he went ahead – without hesitation, self-doubt or apprehension - and placed a limit order, attached a modest stop-loss above it, and then walked away. Note the time difference between when the order was placed, and when it actually filled. What great patience.
Figure 1
After the order was filled, Jon did a great job of managing the trade (properly adjusting his stop) and finally taking profits just before the market closed.
All told, Jon's trade encompassed a lot of what I try to instill in students. There are, however, two main challenges for Jon going forward: First, translating what he did on the simulator to live trading, and second, doing it on a consistent basis. I believe that If Jon has a strong desire to succeed, he will do the work necessary to make it happen.
Let's shift topics now, and discuss the current market. In last week's letter, I wrote about the VIX index, with special emphasis on the most recent levels, as I felt that volatility was due to pick-up. In addition, I listed the deteriorating factors that perhaps would eventually lead to a price correction in the major averages. As I write this piece (early Thursday June 18), the VIX has risen to roughly 31.50 and the factors mentioned last week continue to worsen.
In the lower chart, we see that the ES is still holding its uptrend, albeit just barely, when using the 30–day EMA. Note how the aforementioned EMA has acted as a dynamic trend line for most of the 3-month rally.
Figure 2
Consequently, a major violation of this EMA, along with a breach of the highlighted support level, would most likely give even the dyed-in-the-wool optimists grounds to rethink their position.
Overall, the market looks as though it's going through a transitional phase here (and not for the better), in my humble opinion. Consequently, being prepared for a major shift in market psychology is essential, if one is to prosper in this ever-changing environment.
Until next time, I hope everyone has a profitable week.
If you have questions or comments, please email me at gvelazquez@tradingacademy.com
- Gabe Velazquez
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