A trend trading question

[nursebee]

I remember from some turtle trading type books that trend traders can design or trade a system that buys breakouts of new "X" period highs. Books I read suggested that turtles would trader various markets using this, then selling on period "Y" new lows.

I also recall that if the previous breakout worked, they would not trade the market, but if the previous breakout did not work they would be sure to put on a position.

Referring to a daily chart of XLF, on 11/4 I saw a breakout to recent highs that has quickly fizzled. IT has me pondering the above mentioned turtle guidelines.

My questions for you all are:
1. Other than sticking to the system rules, is there something about a failed breakout that makes a subsequent breakout better? imo, it is a matter of more weak hands have been chased out.

2. Is there something about a successful previous breakout that makes entry less appealing?

Thank you.
I am found at 4nursebee@gmail.com
my trading blog 4nursebee.blogspot.com

 

[intradaybill]

Quote from nursebee:

Referring to a daily chart of XLF, on 11/4 I saw a breakout to recent highs that has quickly fizzled. IT has me pondering the above mentioned turtle guidelines.

You are too quick to call this breakout a failure. Market rewards risk takers not people who get scared as soon as correction occurs. Those that have done their homework may be buying into this dip. Others may be selling. Just talking about it is boring.

 

[nursebee]

Hey thanks intraday Bill, I appreciate the unsolicited info. Now if you are full of insight, would you mind answering the questions I did ask?

 

[nazzdack]

Quote from nursebee:
----design or trade a system that buys breakouts....
----a breakout to recent highs that has quickly fizzled.

1) Instead of buying new-highs in an uptrend, you can try to focus on being a "catfish", i.e. a bottom-picker, instead. Look for three, consecutive, lower, daily closes before initiating a long-position.
2) You can also try to identify the "J-hook" pattern off of daily lows as a way of initiating long-positions with the anticipation of a resumption of an uptrend.

 

[jack hershey]

Quote from nursebee:

I remember from some turtle trading type books that trend traders can design or trade a system that buys breakouts of new "X" period highs. Books I read suggested that turtles would trader various markets using this, then selling on period "Y" new lows.

I also recall that if the previous breakout worked, they would not trade the market, but if the previous breakout did not work they would be sure to put on a position.

Referring to a daily chart of XLF, on 11/4 I saw a breakout to recent highs that has quickly fizzled. IT has me pondering the above mentioned turtle guidelines.

My questions for you all are:
1. Other than sticking to the system rules, is there something about a failed breakout that makes a subsequent breakout better? imo, it is a matter of more weak hands have been chased out.

2. Is there something about a successful previous breakout that makes entry less appealing?

Thank you.
I am found at 4nursebee@gmail.com
my trading blog 4nursebee.blogspot.com

What this opening post brings up is a basic foundational aspect of trading any instrument.

You wll not get many informative responses on this particular and very important set of considerations.

It is not really a secret of how to read and trade markets, but it is not generally known how markets work.

Step back an look at the contexts of TRENDS. Trend after trend zig xag along. These are long, short, long, short, etc.

You may be beginning to notice two things about this order of events. The two people who already responded to you have not notices these two things.

One is this: All the zigs and zags are in a container and that container is NOT flat. This is a departure point for considering the turtles stuff.

The other thing is how an individual trend works: It has three parts that form it.

I have put on the table three separate fractals. A slow fractal, your trading fractal and a faster fractal. Each have their own trendlines (RTL and LTL).

A time passes you will become acquainted with when taking trades has little risk (risk in the CW and Turtle sense.) By knowing that trends have three moves and using three contiguous fractals, then you can use horizontal ines to sicern that a slow trend has begun relative to two faster fractal like ternds. When it is provable that all three fractals ar trending together, then a conservative successful trade can be taken on.


In trems of counting the 9 moves involved, The entry is during the third move and the hold continues through moves 3, 4, 5, 6, 7, 8 and to the end of move 9. By sacrificing move 1 (dominant), move 2 (non dominant) and going into the roughly mid point of the third (dominant) move over 2/3 of the slower fractal is available for making money. This is intermediate term trading of a high QA stock universe with relatively large capital (multimillion dolllar streams).

For me, an example would be netting 1.7 million on 100,000 shares in the 30 dollar stock value exit price range. You can google this example since it is on the record in taimes past.

The three price timeframe referecnces were daily, 30 minute and 5 minute.

There are much better ways than the Turtle ways to position trade stocks.

 

[The Big D]

Quote from nursebee:


My questions for you all are:
1. Other than sticking to the system rules, is there something about a failed breakout that makes a subsequent breakout better? imo, it is a matter of more weak hands have been chased out.

2. Is there something about a successful previous breakout that makes entry less appealing?

The answer to both questions is to understand what causes fake breakouts: stop hunting. When a trading range develops, stops accumulate above and below the range. To profit from this, speculators push price into that area of well-known stops, and then the speculators close the positions they took on to move the price by making a market on the other side for the stops to execute into. It's basically free money IF the stops are really there (which isn't guaranteed in a market where the stop side of the order book is dark).

Note: in this case 'stops' includes things like broker-held stops, entry conditions for trend-following systems, fear responses from traders stuck on the wrong side, and in general anything that acts like a stop even if it isn't a real on-the-exchange stop.

Now, the questions:
1. Once the stops on one side of a trading range have been touched off, they take a while to re-grow. Hence it doesn't make sense to stop hunt in those prices again for a while, and that means that if price does go there it's due to someone actually changing their net position. That in turn is much more likely to be part of a real trend.

2. When a successful trend ends, you get a trading range pretty much by definition. Trading ranges grow stops. Stops are worth hunting.

 

[intradaybill]

Quote from nursebee:

Hey thanks intraday Bill, I appreciate the unsolicited info. Now if you are full of insight, would you mind answering the questions I did ask?

Your questions were too naive. Nobody knows what the turtles do exactly that makes so many of them so successful. You base your questions on unfounded assumptions and as such any answer you get will be "unsolicited". Check this out. Naive breakouts are too simple to be a sound basis for such performance:

http://www.automated-trading-system.com/trend-following-wizard-history/

http://www.automated-trading-system.com/resources/trend-following-wizards-fund-performance/

 

[nursebee]

Basic trend trading I read about was buy new 4 wk high, sell new 2 week low. XLF FAILED, if those were the rules.


My questions were:

1. is there something about a failed breakout that makes a
subsequent breakout better?
2. Is there something about a successful previous breakout that makes entry less appealing?

I did not ask for opinions on trend trading or on fractals.

Thank you Big D, the best answer to my questions!

 

[Maverickz]

EDIT: Apparently I wans't answering your question either. Just giving my opinion on how to trade this.

 

[The Big D]

Quote from nursebee:

Basic trend trading I read about was buy new 4 wk high, sell new 2 week low. XLF FAILED, if those were the rules.

While I realize you didn't ask for commentary on the validity of trend following systems, you do realize the turtle system was designed for commodities rather than stock indexes/sectors, right?

Trading breakouts on stocks is a little harder - there are plenty of rather poorly designed trend following systems that would have made money trading cotton or potash this year, but it would take a reasonably sophisticated system to solidly beat XLF on 1-day bars this year. From May 15th or so onward you would have gotten chopped to death.

The sophisticated system would probably have chosen not to play at all.