Unlike many of my well-educated friends, I barely made it out of high school. I wanted to go to college, but my parents had 10 kids, and when it came time for the bottom half to go to college, the top half had spent all the money on colleges they didn’t finish and marriages that ended in divorce. My parents had 6 girls and 4 boys. I have one daughter. I am not sure what was going on back then, but I do know that it was very hard for my dad to have a forward-looking view with so many kids.
As the end of high school approached, my dad, who went to Notre Dame, again and again tried to push me to go to college. I wanted to go so badly, but I knew the old man didn’t have the cash and I didn’t want to add any further financial burden on my mom and dad.
I grew up in Crystal Lake, Illinois, but in my sophomore year of high school my parents moved the family to Oak Park, River Forest. I was a big kid in Crystal Lake, but the city was much bigger and I had to feel my way around in the beginning. I didn’t rule the streets like I did back in Crystal Lake. As the end of high school neared, people would ask me what I wanted to do. I had no idea, so I went to work for Riley Printing Co. at 600 W. Van Buren. My dad was a tireless worker and the president of the company. But I never wanted to be in printing, and not long after I started, I began fighting with all my uncles, who owned part of the company. I loved my dad but I hated working for the family business.
Back then the drinking age was 19 in Illinois, so getting into the local bars was not hard to do. One of the places we frequented was on Madison and Lathrope in Forest Park. It was a small, Irish, beer-and-a-shot place with loud music and attractive female Irish bartenders. After working at Riley Printing on one Friday night I ended up at the bar. It was called Citizen Kane’s. I had no idea where I was going to end up, but I knew my destiny was not going to have anything to do with printing.
That Friday night as I sat at the bar, Mary Claire Kane (the owner) asked me why I was not my usual self and I told her I hated working for the family company, and just like that she offered me a job on the Chicago Board of Trade, running orders in the grain room. I remember telling my dad I got a job on the floor, and as I walked down Jackson I can remember him telling me it was the best news he had ever heard. When I finally got to the trading floor it was “eyes wide open.” In a matter of minutes I knew this was where I was supposed to be. The traders in the pits jumping up and down and yelling, clerks answering phones, orders going to and from the pits… it was the most exciting thing I had ever seen in my life. I worked my way up to the phones and then moved to the bonds, but not once through any of that did I take any charting or trading classes. I, like many floor traders, learned from the bottom up, and it was not always straight up. My pals were filling Corzine’s bond orders in the bond pit, I was still making my way up the ladder, but it was not until I got an offer to take over running an S&P futures desk on the CME floor that I knew I had found the real “bright lights, big city” I was looking for. The movement of the S&P was beyond anything I had ever seen and the electricity in the air and the smell of the pits was like a dream come true. I got up every morning to do battle.
I didn’t take any charting or trading classes because from the get-go I knew if you were going to make it you had to understand order flow. While moving averages and trend lines were important, Salomon Brothers selling 2,000 big S&Ps before IBM reported was much more up my alley than trading bonds. The bonds were too slow. I wanted fast, and I found it in the S&P futures. So over time I developed my own trading tools, my own way of reading the markets. At the time I didn’t write them down, I just noticed little patterns that existed and I used them to my benefit. Many of them reside in the MrTopStep Trading Rules ebook (https://mrtopstep.com/mts-trading-rules/) but the others are just part of how I read the markets: a gut feeling. I know that may not sound too convincing, but let me pull some posts from the room today.
10:12:58 TRADINGDATA2: (driley) we had 2114 and 2120 for the last two weeks,
objective meet.
10:13:32 TRADINGDATA2: (driley) The ESM15 has run most of the stops we have been talking about.
10:15:48 TRADINGDATA2: (driley) The ES is overbought short term but that does not mean it can’t go higher but I think longs should be careful at at this level or a little higher.
10:16:15 TRADINGDATA2: (driley) Slipper when wet also means it can go south too.
10:16:58 TRADINGDATA2: (driley) My main concern is that the low volumes we are seeing now can and will get worse as the summer kicks into gear.
10:25:52 TRADINGDATA2: (driley) I lean to selling the rallies here and u dont hear that very often. #Greece
10:26:12 TRADINGDATA2: (driley)the ESM15 is overdone short term
10:28:01 TRADINGDATA2: (driley) S&P up 3% / End of the best 6 months for stocks / Sell in May and June and walk away upon us.
10:29:24 TRADINGDATA2: (driley) my gut tells me we are at or near a high of this push.
10:36:45 TRADINGDATA2: (driley) Apr 8 +8.10
Apr 9 +9.80
Apr 10 +9.80
Apr 13 -9.00
Apr 14 +4.40
Apr 15 +8.90
Apr 16 +1.00
Apr 17 -25.3
Apr 20 +15.50
Apr 21 UNCHED
Apr 22 +9.2
Apr 23 +6.7
Apr 24 +4.80 S&P last 17 days 13/ down 2 / 2 unched
12:47:57 TRADINGDATA2: (driley) again the term may sound stupid but think like an algo mean think how they operate.
I would ask that you take the time out to do a time and sales on these text messages. The times are EDT. While the time of the high may not be exact, it’s a great example of understanding trading flow. After program and algorithmic trading took over, for me it didn’t mean enhanced charts. it meant understanding and following the pattern of the algorithmic programs and volume. I knew that the ES was short term overdone, but the real reason for me thinking reversal was very simple; everyone had gone from short into the decline to long into the rally, and the ESM had run most of the larger buy stops on the way up to 2120, leaving nothing but downside sell stops. Once all the early buying power was used up, the S&P did what it does best: it started chasing stops — this time, downside sell stops. I can write more about this, but at the end of the day I think all traders should develop some algo street smarts and fade the breaks and rallies after the big moves like we have seen over the last two weeks …
In a way, not having a lot of college courses on economics and finance may have turned to my advantage. Instead of theorizing about what the market should be doing in response to this earnings report or that economic or news event, I stay focused on the actual order flow and the patterns of buying and selling that move the market up and down. Whether it’s a human or an algo running a series of downside sell stops, I don’t need a Ph.D. in economics to tell me the price is going to go down and that I need to exit my long positions and/or get short. And from there, as I learned after all those sweaty, brawling years in the pits, I don’t take my eye off the market to start theorizing and tweaking my indicators. I watch to see when the order flow switches back to the buy side and I follow that trend. That’s an education I could never have gotten at Notre Dame and which few people get even today. That’s why I try to pass it on to all of you, so you can benefit from what I’ve learned, but maybe not have to learn it the hard way.
The Asian markets closed mostly lower and in Europe 10 out of 12 markets quoted are trading lower this morning. Today’s economic calendar starts with day one of the two-day FOMC meeting, Redbook, S&P Case-Shiller HPI, consumer confidence, Richmond Fed Manufacturing Index, 5-year note auction and earnings before the open from: FLWS AET AMG BSX BP BMY CNC GLW CMI ECL FSRV F FDP GPI ICLR IPGP JEC JBLU MRK PAG PFE SIRI XRS TMUS TXT TOT TDG UPS VLO VDSI WAT WYN YNDX and after the close from AKAM AZPN BMR BWLD CBL CHE CRUS DHT ESRX FARO FEIC GPRO GPRE HLIT ICAI IPHI LOGM MTSI MRCY PNRA PSEM SWI TMH TWTR SLCA X VRSK WDC.
Next 30 Handles Are Down
Our View: I told the PitBull on yesterday’s highs that the next 30 handles were going to be down and I got 25 of them so far. Today starts the Federal Reserve’s two-day FOMC meeting and there are several economic reports and a ton of earnings to get past. With the low volumes it’s much easier to see how the algos take advantage of the buy and sell stops. Yesterday they finished off running the upside buy stops and started going after the downside sell stops. I think the ES may stay on the weak side for the next few days and rally later in the week. Our view is to buy the early weakness and sell the rallies.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets closed lower: Shanghai Comp. -1.13%, Hang Seng +0.03%, Nikkei +0.38%
- In Europe 10 of 12 markets are trading lower: DAX -1.37%, FTSE -1.11%, MICEX -0.33%, GD.AT +0.56% (at 6:00 am CT)
- Fair value: S&P -6.50, Nasdaq -8.27 , DOW -78.71
- Total volume: LOW 1.2mil ESM and 3k SPM traded
- Economic schedule: Day one of the two-day FOMC meeting, Redbook, S&P Case-Shiller HPI, consumer confidence, Richmond Fed Manufacturing Index, 5-year note auction.
[s_static_display]
No responses yet