3 phrases of trends: which is low-risk & high-rewards?

[schizo]

Looking at a chart after the fact, early entry is the lowest risk highest reward entry.

Yes, only AFTER THE FACT. But that's silly, considering that you can't cherry pick while trading live. Bottom fishing, namely thinking it's the start of a new trend, is not a low risk entry. Most will get stopped out. That's why you often see double bottoms (or triple bottoms, or straight up range bound market).

 

[ironchef]

Yes, only AFTER THE FACT. But that's silly, considering that you can't cherry pick while trading live. Bottom fishing, namely thinking it's the start of a new trend, is not a low risk entry. Most will get stopped out. That's why you often see double bottoms (or triple bottoms, or straight up range bound market).

Every trader on ET does this or a variance of this:

Study chart patterns, indicators, candles... and try to find a surefire entry & exit, like second entry, trailing stops, etc. And rely on RM to limit losses & let profits run.

Everyone uses the same playbook but only a few, like you, are consistently profitable? Why?

 

[schizo]

Everyone uses the same playbook but only a few, like you, are consistently profitable? Why?

LOL no need to remind me of all the losses I've incurred from picking tops and bottoms.

Anyway, I see no need to ruminate on the obvious. Sure, entering at the exact bottom and riding to the top of the trend would be the most ideal trade with the best outcome in terms of risk and reward. But the question remains: When have you (or any of us for that matter) ever taken such a trade on a consistent basis? Almost never.

Just consider what the OP wrote at the outset:

_______________________________________​

• Beginning: When a trend is just starting, traders typically jump in and make their moves without a clear sign of where the price is going next, resulting in significant risk. But if they do manage to predict the trend movements accurately, the rewards are pretty sweet!

• Middle: Now, the middle phase is where things get really exciting! The trend has already gained some serious momentum. Using pullback signals, you can make some low-risk, high-reward trades. This is the GOLDEN stage you have been waiting for to hop on some order entries and score big.

• End: It's best to steer clear of placing orders during the final phase of a trend because the risk is high, and the potential rewards are low.

_______________________________________​

Easier said than done! How is one to know where the BEGINNING, MIDDLE, or END is? None of them are easy to spot, especially the beginning and the end, until the price has already made a significant move.

 

[ironchef]

Everyone uses the same playbook but only a few, like you, are consistently profitable? Why?

Easier said than done! How is one to know where the BEGINNING, MIDDLE, or END is? None of them are easy to spot, especially the beginning and the end, until the price has already made a significant move.

@schizo, you spent a lot of time posting educational info to try help those of us new to trading and we appreciate it very much.

After trying multiple times to implement those rules, trading plans and failed, I asked my question hundreds of times and came to the conclusion if I kept taking the same path, I would keep getting the same results as the 99%.

Early this year, I decided to take a detour and tried a different path. It is too early to tell if I found a good path. I will know in a few years.

 

[deaddog]

• Middle: Now, the middle phase is where things get really exciting! The trend has already gained some serious momentum. Using pullback signals, you can make some low-risk, high-reward trades. This is the GOLDEN stage you have been waiting for to hop on some order entries and score big.
  

Once you have established that a trend is in place why are you waiting for a pull back?
If it is a strong trend it might not pull back.
Is it a consumer rationalization that you want to buy something on sale to encourage the retail trader to get involved?

 

[toucan]

@ironchef here are my thoughts on trends

Traders are different when it comes to deciding how/why/where/when to enter trades, manage their trades and how/why/where/when to exit trades. However, once in a trade, they all expect price to trend in the trade direction for some time period and believe that they can profitably trade some portion of that trend.

Trends can be defined by the following:

• A trend is a price action pattern that repeats over and over again
• Trends can be found in any timeframe and on any chart type
• Trends can be defined as price movement in one direction

Trends can be defined and measured by the initial stoploss

• A new trend starts when an existing trend has price action that reverses more than the initial stoploss
• A trend ends when price pulls back by more than the initial stoploss
• Trend lengths can be measured by using increments of the 1R initial stoploss

Markets and trends change over time, so an initial stoploss should be adjusted to reflect changing trends. I use computer code to analyze the relationship between initial stoploss and trends, looking for the best initial stoploss/trend combination. i used to spend all weekend doing this manually. The attached gold chart is an example of the information I get from my analysis from top to bottom on the right side of the chart.

• The look back is 10 trading days
• Trends are derived from the initial stoploss using the above definitions and measurements.
• Shown in green, on average between 5am pst and 7am pst, there are on average, 5 total trends each day. 51% of those trends are >=2R and 26% of these trends are >=3R.
• Next in black, those 51% of trends average 3.0R to 3.6R in length
• Last the average trend time is 12 minutes

Given the above information from my analysis, this is what I believe:

• There is a new trend only after the trend moves 1R in the new trend direction, so I give up 1R profits before any possible trade entry
• There is a 51% chance of the trend being >=2R and a 26% of the trend being >=3R
• If I enter within 2R of the trend starting point, there is on average, 1-2R left in the trend.
• The initial stoploss is 1R, the profit target is 2R and the plan is to enter within 2R and exit before 4R
• My trade management system will use these factors to keep losses <=1R, protect profits as they accumulate and exit at 2R.
• No matter what I noted above, all price action is random and anything can happen. For example, if I flip a coin 10,000 times and 10,000 times the coin comes up heads, the next flip probability is 50:50. So trade management is critical to successful trading.

 

[tomorton]

Once you have established that a trend is in place why are you waiting for a pull back?
If it is a strong trend it might not pull back.
Is it a consumer rationalization that you want to buy something on sale to encourage the retail trader to get involved?

The pull-back in prices is not justified if you just want a discount on recent prices. What it is useful for is as a test of the trend strength. So if price drops in an uptrend it's valid to set a buy entry order above the pull-back and wait to see if the market will be bullish enough to continue the trend. If the entry price is not reached, you can make other plans but it will have cost nothing.

 

[ironchef]

@ironchef here are my thoughts on trends

Traders are different when it comes to deciding how/why/where/when to enter trades, manage their trades and how/why/where/when to exit trades. However, once in a trade, they all expect price to trend in the trade direction for some time period and believe that they can profitably trade some portion of that trend.

Trends can be defined by the following:

• A trend is a price action pattern that repeats over and over again
• Trends can be found in any timeframe and on any chart type
• Trends can be defined as price movement in one direction

Trends can be defined and measured by the initial stoploss

• A new trend starts when an existing trend has price action that reverses more than the initial stoploss
• A trend ends when price pulls back by more than the initial stoploss
• Trend lengths can be measured by using increments of the 1R initial stoploss

Markets and trends change over time, so an initial stoploss should be adjusted to reflect changing trends. I use computer code to analyze the relationship between initial stoploss and trends, looking for the best initial stoploss/trend combination. i used to spend all weekend doing this manually. The attached gold chart is an example of the information I get from my analysis from top to bottom on the right side of the chart.

• The look back is 10 trading days
• Trends are derived from the initial stoploss using the above definitions and measurements.
• Shown in green, on average between 5am pst and 7am pst, there are on average, 5 total trends each day. 51% of those trends are >=2R and 26% of these trends are >=3R.
• Next in black, those 51% of trends average 3.0R to 3.6R in length
• Last the average trend time is 12 minutes

Given the above information from my analysis, this is what I believe:

• There is a new trend only after the trend moves 1R in the new trend direction, so I give up 1R profits before any possible trade entry
• There is a 51% chance of the trend being >=2R and a 26% of the trend being >=3R
• If I enter within 2R of the trend starting point, there is on average, 1-2R left in the trend.
• The initial stoploss is 1R, the profit target is 2R and the plan is to enter within 2R and exit before 4R
• My trade management system will use these factors to keep losses <=1R, protect profits as they accumulate and exit at 2R.
• No matter what I noted above, all price action is random and anything can happen. For example, if I flip a coin 10,000 times and 10,000 times the coin comes up heads, the next flip probability is 50:50. So trade management is critical to successful trading.

View attachment 328760

Thank you for this very thoughtful post.

I need time to analyze what you said but we think alike sir.

I have six months of trading statistics to compare with your numbers. From where I sit, knowing my results, you are one of the few who knows what you are doing.

Unlike you, few books, even Brooks provided any statistical data to support their claims. I give you two thumbs up!

Merry Christmas & happy new year to you.

 

[ironchef]

The pull-back in prices is not justified if you just want a discount on recent prices. What it is useful for is as a test of the trend strength. So if price drops in an uptrend it's valid to set a buy entry order above the pull-back and wait to see if the market will be bullish enough to continue the trend. If the entry price is not reached, you can make other plans but it will have cost nothing.

I agree with @deaddog. Just my opinion, with no data to support that opinion.

I am not saying you are wrong because there are no data/statistics to support or refute those statements.

I can't help but thinking about the Charlie Munger quote:

The fishing tackle manufacturer I knew had all these flashy green and purple lures. I asked, 'Do fish take these?' 'Charlie', he said, 'I don't sell these lures to fish'

 

[SunTrader]

@ironchef here are my thoughts on trends

Traders are different when it comes to deciding how/why/where/when to enter trades, manage their trades and how/why/where/when to exit trades. However, once in a trade, they all expect price to trend in the trade direction for some time period and believe that they can profitably trade some portion of that trend.

Trends can be defined by the following:

• A trend is a price action pattern that repeats over and over again
• Trends can be found in any timeframe and on any chart type
• Trends can be defined as price movement in one direction

Trends can be defined and measured by the initial stoploss

• A new trend starts when an existing trend has price action that reverses more than the initial stoploss
• A trend ends when price pulls back by more than the initial stoploss
• Trend lengths can be measured by using increments of the 1R initial stoploss

Markets and trends change over time, so an initial stoploss should be adjusted to reflect changing trends. I use computer code to analyze the relationship between initial stoploss and trends, looking for the best initial stoploss/trend combination. i used to spend all weekend doing this manually. The attached gold chart is an example of the information I get from my analysis from top to bottom on the right side of the chart.

• The look back is 10 trading days
• Trends are derived from the initial stoploss using the above definitions and measurements.
• Shown in green, on average between 5am pst and 7am pst, there are on average, 5 total trends each day. 51% of those trends are >=2R and 26% of these trends are >=3R.
• Next in black, those 51% of trends average 3.0R to 3.6R in length
• Last the average trend time is 12 minutes

Given the above information from my analysis, this is what I believe:

• There is a new trend only after the trend moves 1R in the new trend direction, so I give up 1R profits before any possible trade entry
• There is a 51% chance of the trend being >=2R and a 26% of the trend being >=3R
• If I enter within 2R of the trend starting point, there is on average, 1-2R left in the trend.
• The initial stoploss is 1R, the profit target is 2R and the plan is to enter within 2R and exit before 4R
• My trade management system will use these factors to keep losses <=1R, protect profits as they accumulate and exit at 2R.
• No matter what I noted above, all price action is random and anything can happen. For example, if I flip a coin 10,000 times and 10,000 times the coin comes up heads, the next flip probability is 50:50. So trade management is critical to successful trading.

Seriously?

25tick bars to find trend?