Financial Sense

Can you turn a negative day into a positive day?

by Gail Mercer, Hawkeye Traders | April 28, 2009


The most frustrating part in trading is that even when we are doing everything right, the market does not cooperate and we end up on the wrong side of the market. And, quite often, instead of saying that the market conditions are different, we go out and look for new indicators because, after all, we had a negative trade and that must mean our indicators don't work. WRONG!

We all want those perfect days, signals are generated perfectly, we enter and BAM it goes straight to a Level 3. We take our profits and slap ourselves on the back because we know what we have concurred the markets. However, not all days are perfect and understanding the current market conditions and movement is one of the most basic elements of skill for any successful trader.

Let's look at Wednesday and Thursday of the past week from the mind of a typical trader.
On Wednesday (no market reports were due out) and the ES opened in a downtrend on the 1800 tick chart. At 10am our first signal came in for a long position, BAM right up to Level 3, resulting in about 7 points. What a perfect trade -- all you had to do was follow the basic Hawkeye rules. We are now confident that we know what we are doing and our indicators are great!

ES 1 - Wednesday April 22, 2009

We come back on Thursday and notice we have a 10am report. Market opens with white trend dots, then our first signal comes in 10:00, just as the announcement comes out but we notice there is no volatility so we decide to take the trade. We promptly get stopped out at 839 -- resulting in about 3 points negative. We go on to take the uptrend, and, again, get stopped out at 836 -- resulting in another 3.75 points negative. These indicators just don't work.

ES 2 - Thursday April 23, 2009

Now, let's look at it from a different perspective using the Hawkeye KISS, which gives us vital clues from the opening about the current market conditions and what might happen.

The figure below shows the Hawkeye KISS on Wednesday morning. Notice from the opening -- there is no hesitation, sellers are surging upwards. We are watching the price, it makes a low pivot (see figure ES 1 above), so now we are expecting a high pivot. High pivot comes in, KISS tells us that sellers are starting to decrease in the market. Price comes down and makes a higher low pivot. We now know that this potential downtrend is in trouble. Then sellers start to decrease and buyers are increasing -- with MOMENTUM. Price closes above the high pivot, Hawkeye Trend turns green, we enter the trade and take profits.

KISS 1 - April 22, 2009

Now, let's compare this with the Hawkeye KISS on Thursday, April 23, 2009. In the KISS 2 figure below, we see from the opening, there is momentum. Buyers are increasing but price is declining -- a very important clue. If buyers are in the market with momentum, then why are prices decreasing? Where is the strong crossover that we normally see at the open? Not there. First indication that the market may be trading differently today.

We then get a signal to go short and sellers seem to be increasing -- however, remember from the opening there has not been any momentum. We need to be a little cautious. We enter the downtrend at 837 with an initial stop at a close above Zero. Price makes a low pivot and we know to anticipate a high pivot. We get an isolated phantom high followed by a higher low pivot (see Figure ES 2 above) -- we are in trouble and we see that at this point sellers are faltering. We decide to exit now at a negative 1.5 points because we now know that the market is not trending. We have to change our trading behavior.

We get a second signal at 10:24am and we enter long at 839.75 (we are using a close below Zero for a stop for our initial stop). We notice on the KISS that although buyers are increasing, it is without momentum. Now we have a choice, go for Level 3 (with no buyer momentum in the market) or take what the market will give us. We decide to take a Level 2. Price gets within 2 ticks of Level 2 (842.50) and then starts downward. We decide to take our profit at 2 points. We then get a short signal and sellers are increasing so we enter at 837.25. Again, due to current market conditions, we are going for Level 2 at 831.75. Price reaches Level 2 and we take 5 points profits.


As you can see, by using the Hawkeye KISS and our trading skill, we have turned a potentially negative day (-6.75 points) into a positive day (+7 points). How? Instead of expecting our indicators to do all the work, we realized that our indicators are to help us but ultimately we have to use trading skill to take profits. We know that in order for price to go down, sellers have to increase -- with momentum. If the price is going to go up, buyers have to increase -- with momentum. The Hawkeye KISS gave us an advantage in the market because it showed us, from the opening, that neither buyers nor sellers had the momentum to move price to Level 3. So we changed our strategy to one that allowed us to take Level 2.

By adapting to the ever changing markets, you can take profits -- sometimes small, weak momentum, and sometimes large, strong momentum.

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Copyright © 2009 Gail Mercer
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