Creating an Opportunity !!

[jokepie]

“To get through the hardest journey we need take only one step at a time, but we must keep on stepping”
- Some chinese guy

I continue to research and pick my brains to figure out this game. I keep reading, practicing and burning my eyeballs day in and day out. As mentioned in my previous threads I am believe the ultimate key to trading is experience as it is with an y profession. Everyone havetheir own learning curve and must respect it. I have previously tried to post my research or experience with time frames and changing our Goals and recieved good constructive feedback here on ET. Its for me and for whoever finds any value from it. As promised before i was working on "creating an oppurtunity" for a while and got delayed due to the holidays. Rested and ready to keep Marching - I am gonna post my work here for your opinions and advises and criticisim. Below is the first part of the work and will post the later part as soon as I am done with It. Next step as you would imagine is to do a live experiment for which I have a small ($3K) forex a/c ready. I hope you guys like it !!

Creating an opportunity

Trading is all about taking advantage of the market movements.

FACT: Markets move because they have to and they move all the time!

An Opportunity shows itself when an instrument moves in either direction.

FACT: There are only two possible moves – UP or DOWN!!

Once an Opportunity is brought to our attention by either Alerts/ Scanners or by just watching the charts that are open - We are presented with the option to take an action. Actions require the following thought process:
1. Is this a real move?
a. We can never tell.

2. Is the move up or down?
a. We can tell (visually) as long as we have a decent answer of the first question.

3. How far this move will go?
a. We can never tell. So we start to rely/ calculate on levels, trend lines, channels, other indicators etc. Ultimately we ARBITRARELY come up with a logic (ATR, levels, daily targets, averages etc.) and decide a TARGET which is again have no reality to it.

4. What size to take?
a. Based on the answers from question 3, we take a position (doesn’t matter if you are intraday or daily or long term trader) of the size that fits OUR tolerance of LOSS at that moment. (Please note that we have no way to know what the actual profit might be at this point. However we have defined our risk. Probably a good thing??)

5. Where is my exit?
a. We can never be sure and perfectly time an exit to give us max profit on that very trade. So we gain use the logic we defined in answer to question 4, define a STOP and TARGET, we place the orders and feel safe that statistics will take care of us. (I feel very strongly about statistics.)
i. Some might use size management to change the risk variably and add to the winners and cut the losers. This definitely creates a statistical edge and is a very effective method of trade management.

Probably most traders will agree with the above statements as they make up the most common thinking process when it comes to discretionary trading. Issue with process is that by the time we witness and process an “Opportunity”, it has already moved certain ticks that were produced by the “Movers” i.e certain community of traders (I am referring to the institutional & big players) have taken a position already! While you were waiting for the indicators or even price to show you opportunity – someone has placed a trade and now you are at risk of actually grabbing their close order and are at the “Other end” of the deal, which is at the mercy of fresh buyers to continue this cycle of looking for the next sucker.

Guru,



P.S. - To Moderators - I keep posting in the "psychology" thread coz i believe all this is a mind game so far and i get the better quality responses. If you may feel differently - feel free to move it as nessesary. Thanks.

 

[hkrahra]

Experience experience experience..........

experience is my huge eggs!you need to find a supa mentor to figure out this game.that is it.

 

[jokepie]

Thanks hk

 

[iceman1]

Quote from jokepie:

“To get through the hardest journey we need take only one step at a time, but we must keep on stepping”
- Some chinese guy

we must keep on stepping if we are going in the right direction or else know when to change course

 

[Chris_Anonymous]

As a mentor of mine has said to me before:

"Trading is truly a game that we all play inside our heads"

So far as I can tell, most methods/strategies work provided the context is right. My experience is beginning to show me that it's not the strategy it's the trader. I think trading truly can be so difficult because every realization or "ah-ha moment" that other traders have had cannot be given directly to me. I need to come to each and every revelation myself, just as others have. And that is a process no one can hand over to you.

So as others have said and as I'm only beginning to realize, I need to create a winning game for myself, and distinguish between my gut intuition and my fears. Fears will hold me back, or help me over-trade, or allow me to jump the gun, or chase an entry, etc. My gut instinct will tell me (if I'm honest with myself) that I have an issue with the strategy, or that I'm not doing something correctly.

It might take a while to distinguish the two thought streams, but it's possible. And it might also take a while to recognize what the gut intuition is saying (it took me like 3 months straight of circling around with little to no progress before it hit me), but it's possible.

The key is to never give up.

 

[jokepie]

Quote from Chris_Anonymous:

As a mentor of mine has said to me before:

"Trading is truly a game that we all play inside our heads"

......


The key is to never give up.

So true and can relate to it.

Thanks for your input.

 

[NoDoji]

Quote from jokepie:

Issue with process is that by the time we witness and process an “Opportunity”, it has already moved certain ticks that were produced by the “Movers” i.e certain community of traders (I am referring to the institutional & big players) have taken a position already! While you were waiting for the indicators or even price to show you opportunity – someone has placed a trade and now you are at risk of actually grabbing their close order and are at the “Other end” of the deal, which is at the mercy of fresh buyers to continue this cycle of looking for the next sucker.

Jokepie, thank you for some fantastic information you provided last year in various posts.

Above you've identified a key puzzle to be solved in developing a consistently profitable price action trading plan. Since indicators lag and price action happens here and now at the hard right edge of a price chart, how can you use indicators and/or previous price action to identify opportunities that are more likely than not to offer a positive reward:risk ratio?

The way I solved this puzzle was first to study static charts in my preferred trading time frame (intraday using a 5-min chart) and identify all the price moves that offered the chance to extract more profit than the average loss risked if a protective stop was placed just outside the nearest previous support or resistance level.

After identifying all such price moves for a given day, I noted as many patterns as I could find surrounding the initiation of each price swing. I identified reasons why price stopped moving in one direction and began moving the other direction. I found that trend/channel lines were a strong predictor for where price was likely to find (at least temporary) support or resistance. The touch or slight overshoot of a trend line (or parallel channel line in a trending channel) was the earliest possible indication that price might reverse. I looked at micro price patterns on a smaller time frame (1-min chart for me) surrounding pivots off S/R levels and noted which patterns indicated a price turn into a profitable swing more often than not. I also looked at such patterns surrounding breaks out of consolidation (narrow range, channel or triangle) and noted the ones that produced significant moves.

I identified patterns and price action triggers that allowed the earliest possible entry with least possible risk. Over time and with much daily study, I developed rules for trading based on these high probability patterns and price action triggers and continue to hone them as I learn more.

After going to all this trouble, I realized that several traders (Bighog, Al Brooks, Alan Farley, Anekdoten, Sal/Schizo, AustinP, Jack Hershey, Oliver Velez/Greg Capra, etc.) had already offered all this information in books/webinars or through this web site and via chat, but until I had invented my own wheel, I had difficulty believing/trusting that they were offering high quality round wheels guaranteed to get me where I wanted to go.

 

[jokepie]

Quote from NoDoji:

Jokepie, thank you for some fantastic information you provided last year in various posts.

Above you've identified a key puzzle to be solved in developing a consistently profitable price action trading plan. Since indicators lag and price action happens here and now at the hard right edge of a price chart, how can you use indicators and/or previous price action to identify opportunities that are more likely than not to offer a positive reward:risk ratio?

The way I solved this puzzle was first to study static charts in my preferred trading time frame (intraday using a 5-min chart) and identify all the price moves that offered the chance to extract more profit than the average loss risked if a protective stop was placed just outside the nearest previous support or resistance level.

After identifying all such price moves for a given day, I noted as many patterns as I could find surrounding the initiation of each price swing. I identified reasons why price stopped moving in one direction and began moving the other direction. I found that trend/channel lines were a strong predictor for where price was likely to find (at least temporary) support or resistance. The touch or slight overshoot of a trend line (or parallel channel line in a trending channel) was the earliest possible indication that price might reverse. I looked at micro price patterns on a smaller time frame (1-min chart for me) surrounding pivots off S/R levels and noted which patterns indicated a price turn into a profitable swing more often than not. I also looked at such patterns surrounding breaks out of consolidation (narrow range, channel or triangle) and noted the ones that produced significant moves.

I identified patterns and price action triggers that allowed the earliest possible entry with least possible risk. Over time and with much daily study, I developed rules for trading based on these high probability patterns and price action triggers and continue to hone them as I learn more.

After going to all this trouble, I realized that several traders (Bighog, Al Brooks, Alan Farley, Anekdoten, Sal/Schizo, AustinP, Jack Hershey, Oliver Velez/Greg Capra, etc.) had already offered all this information in books/webinars or through this web site and via chat, but until I had invented my own wheel, I had difficulty believing/trusting that they were offering high quality round wheels guaranteed to get me where I wanted to go.

Thanks NoDoji for your kind words and comments.
My goal with this article to reach the core of trading methodologies. i am close to believing that the patterns are levels as may have provided a trader with an edge, There is a single method of trading that is a mixture of price volatility, momentum and risk management techniques.
In the later part i will try to jot down the method in words and embark on a live experiment with it. I hope you guys will keep me honest

Thanks again,

Guru