Dante's Sandbox

[Dante]

I built my first intraday trading plan last year. It backtested well, forward tested well on simulation, and then hit my loss limit after about 30 days of live trading. I've tracked it since then and the equity has continued to trend down. So it's time to design a new plan.

I built the old plan by manually backtesting patterns. I presume it was fitted to the period of observation. Though the design was flawed, I traded it well, and once I shelved it I went back to the drawing board.

During the drawing board phase, I watched a video of Linda Raschke discussing the history of technical analysis. She mentioned that everything the aspiring trader needs to know is already available to him if only he would read Dow, Schabacker, and Wyckoff. I'm susceptible to the idea that all worthwhile knowledge is perennial, and I like the idea of the “classics,” so I went off in search of these three.

It's impossible to research Wyckoff on the internet without coming across He Who Rises From The Ashes, which is how I ended up reading the Straight Line threads in these forums.

Here's what I'm going to do:

1) Lay out a mechanical baseline plan. This plan will be overactive - “surfing” as the SLA guys say – but I intend to trade twenty days on replay with this plan to give me some raw material to work with. I will not adjust the plan until I've completed the twenty days.

2) I will write a narrative of each day as it unfolds and post it here (I wrote the first narrative in hindsight after trading the first day, but I think it is a good idea to do it in realtime going forward). I expect the narrative to provide idea generation for adjustments to the plan, but we'll see.

3) I will also take screenshots of the hard right edge of each setup to aid in refining the plan. I won't post all of these to the forum, because that would be tedious, but will post charts that show the entire day along with the narrative.

This project will go as slowly as it needs to to not crowd out other important areas of my life, but as quickly as it can.

In the next post I'll layout the details of the mechanical plan that I'll be starting with.

 

[Dante]

This is written from the long side. Reverse everything for shorts.

Definition: a swing low is a bar with a low below both the low of the prior bar and the low of the subsequent bar.

1) Enter on a stop 4 ticks above the first retracement after the break of a supply line. A retracement is defined as the first bar after the break of a supply line to make a lower high than the previous bar.

If a short position is open it is possible that a slight break of a supply line will not result in an exit of the short (see below). In this case the short must be exited before a long can be initiated on a retracement, unless price makes a lower high on the retracement, in which case a stop and reverse is required at the point where the short is entered.

a) If the first bar after a valid retracement makes a lower high than the retracement bar the stop entry order will be brought down to 4 ticks above the new lower high.

b) The stop entry order will be canceled if price breaks the previous swing low before an entry is triggered.

2) Draw a demand line for management when:

a) One swing low meets with a subsequent higher swing low.

b) It is possible that after the break of a supply line an inside bar will provide a valid retracement without creating a second swing low. In this case the demand line will be drawn when the stop entry is triggered and a position is opened. The second point of the demand line will be the low of whatever bar creates a demand line that best cradles price at the time of entry. This is also how an initial demand line will be drawn if the retracement bar is not an inside bar but the entry bar is an outside bar.

If the retracement bar is an inside bar and the entry bar breaks the high of that retracement bar before it breaks the low, the preferred exit location on the trade will be the low of the retracement bar, provided this exit is within 5 ticks of the demand line (see below).

c) If a new swing low is put in or price breaks above the previous swing high, the demand line is fanned to connect the initial swing low to the most recent swing low. If the current demand line does not connect two swing lows, the demand line will be fanned to connect the new swing low with the lowest point possible on the current demand line. If a swing high is broken without putting in a higher swing low, the demand line will be fanned to cradle price as tightly as possible.

3) Exit a long on the break of a demand line, within the first five ticks of the break.

a) I'll give price some wiggle room on the other side of the line. I will exit as close to the line as possible, but also, where possible, beyond a price point in the market (e.g. the low of a strong up bar, a previous swing low, etc).

 

[Dante]

Day One:

Trades: 16 / Wins: 5 / Losses: 11
ProfitFactor: .56

Narrative:

Buyers were very aggressive overnight. The first triggered trade was before the open: a short well off the highs and without another attempt at the high. Three bars before entry was a wide range bar that made a swing high, showing that sellers were enthusiastic or buyers who had missed the overnight move are not going to be active until they see lower prices. The retest continued on a less aggressive move up, and the entry bar saw sellers once again step in at the previous swing high. Sellers were active earlier on this move up than the previous move up, creating a lower high, though they did not overwhelm buyers. Market participants settled into an equilibrium point ahead of the open.

Selling pressure gained the upper hand, pushing price below the demand line, but buyers defended twice, successfully returning price to the equilibrium point. The third push away from equilibrium tipped the balance and price ran down to roughly the 50% point of the overnight move up. Here buyers finally stepped up. Buyers were enthusiastic enough to create a wide range bar to the upside that broke the previous swing high. The retest of the low came in with less seller aggression than the first push down to the low and buying activity created a double bottom and another large bar to the upside. That thrust broke the demand line and the premarket short was exited.

There was no with plan entry on a retest, because there was no lower high until price had reached the premarket equilibrium point, but the second elipse shows a local double top where sellers twice tried to push price lower and failed. The first with plan retest offered was a late retest. The wave that took me into the trade stalled out below the high of the move and represented the second attempt on the part of buyers to take the high. Buyers failed and the demand line was broken.

The third ellipse shows testing action without a with plan retest, and when sellers took out those lows price again left the premarket equilibrium point. Selling pressure took price down to the earlier double bottom and shot out of that equilibrium point ahead of the prior bottom with aggressive buying. There was a with plan late retest into that prior low, which quickly resulted in a loss.

The aggressive buying dried up before making a new major swing high, so now the market has made a higher low and a lower high. One more test into the center of that range met with buying, and gave a with plan retest, and price made a clean move to a new high.

The fourth ellipse is reversal behavior. Price balanced at the new high, and buying pressure took out that high once more, only to be met with aggressive selling. There wasn't a clear break of the demand line, so no with plan trade. The inside bar after the large range down bar was the retest. I followed the plan and took the first defined retest offered by the market, which was a late retest meeting with swift failure.

There was another plan entry to the long side, and though the entry bar showed good buying there was no follow through. Sellers took price down and broke the previous swing low. No more aggressive buying for now. The next retest also failed and the market settled into balance.

DayOne_b)

I continued to take with plan entries for small wins and losses. After the BE trade, price broke below the previous swing low, but buyers were there to defend the area below that swing low twice and price rotated back to the top of the balance. A lower high and higher low indicated that the market was narrowing in on equilibrium again. After the small win to the long side I had a with plan retest short. I saw in real time that this short was going to take me right into the center of this equilibrium, but I had to take it. On the stop out buyers broke the last swing high and left equilibrium. I took a stop on a small balance just after the breakout after which price made a higher high and balanced at the high. I had a with plan short on a retest of this balance, but price did not leave the area with aggression, and after the stop a retest long gave the last winner of the day.

A failure above the high of the day turned out to be the end of the buying, and the rest of the day was a drift down and balance below the highs. Trading this action resulted in three more stop outs.

 

[Dante]

Day Two:

Trades: 13 / Wins: 6 / Losses: 7
Profit Factor: 2.6

Narrative:

Lower swings last night, retracing about 40% of yesterday's range. Buyers break the overnight supply line and two previous swing highs with aggression. Price retests the swing highs from above and breaks a supply line and retests on the tick chart, then balances above swing highs from ON downtrend. An inside bar gives a with plan retest and entry. Entry is accompanied by strong buying. No sign of weakness as a few swing highs are broken. Buyers are active on first retest of the demand line, creating a tight swing low. Buyers not active enough to retest the high before losing the swing low and the demand line.

The post-breakout balance area is held on first test by buyers. As price approaches the high it balances below it and the buyers take it through on aggressive buying. Sellers are happy to meet them with selling and push price back below the swing high, and price prints the widest range bar of the morning to the downside. Sellers are in control to the downside, taking out the previous swing low.

Retest taken to the downside gives major positive slippage. Buyers are resisting the selling pressure but sellers hold them to it. When buyers break they break hard. They could be motivated to step out of the way to buy lower prices. Buyers hold above the overnight low and the market balances. Lower highs and higher lows on the tick chart as the market narrows towards equilibrium. Upside break out of that micro-balance takes out the short trade, but sellers push it right back. Buyers and sellers trading punches, returning to balance above the low before retesting it. Buyers are active there.

Entry long. No immediate follow through. Big swings on the tick chart. Price makes a higher high moves back through the swing lows for a big stop out. The break below the lows is met with buyers snatching up value and we're back in the balance. Supply is there and a short is triggered as price leaves the equilibrium point for the second time to the downside. Lower high and higher low as we narrow down again. No one is in control.

Buyers break supply and two swing highs. Sellers have had two cracks at this. Watch to see if buyers are aggressive after retest. Price holds above prior supply. Balancing here. Strong break, retest of top of balance and another go at the recent swing high. Decent break but no capitulation like action from sellers. We're grinding higher, but maybe sellers exited their positions in the balancing at the lows because they are not adding fuel here.

Demand falters at the 50% retrace of the down move and price heads lower through the demand line and the most recent swing low. We'll see if buyers want another crack at picking up lower prices or if they stand aside and let sellers push down one more leg.

Waves to the downside show more aggression than retraces until we make it to prior balance. Buyers are there again and price is back in the mud. Price breaks the low and starts to move. Buyers may be throwing in the towel here.

The first buying response capable of taking out the prior swing high comes in at the completion of the second leg down and breaks the demand line. The first retest doesn't make it all the way to the low, and on a retest there is demand there. Lower high and demand falters. Price penetrates LOD. ( replay starts giving me crazy fills – correct them when compiling the stats)

The break of the low did not result in another cascade. Buyers are comfortable buying here, and price balances here before pushing back inside the previous low, resting and making another strong wave up. The balance has shifted. Steep demand line results in a stop. Price pulls and makes another leg up. Buyers still very much in control.

Price consolidates near the highs of this move and blasts out again. There is a very late retest, but far away from any demand line. Another consolidation as there is a little supply up here. Supply caves and there's more continuation. Buyers still firmly in control.

The market finally fails to find buying at a previous swing high and breaks the demand line. This is the first sign that buyers might be done for now. The demand line break does not give an entry on a retrace. Neither does the supply line break. After a move like that I expect consolidation. Another demand line break without a retest and a pretty strong break of supply. The market hasn't tested the high yet and is slowly making higher highs and lows.

A lower low is in and the market picks up directional conviction. The market follows through on the retest but there is less aggression after the retest than before the retest. The consolidation overhead may have given buyers wanting out an opportunity to get out, so there might not be much supply here to drive the market down.

There's another break here as we approach a small balance from the big move up. Buyers step up a few times here – and now there's a stronger buy response as the short is exited. Relatively smooth retest and buyers are there on the retest. Strong buying meets strong selling without putting in a swing low. There's a retest at the 50% retrace of the last big swing down. Perhaps one more chance to panic the buyers.

And there's the crack. No buyers stepping up here. Now we're running hard. Steeper supply line available. I'm out. Running like a hare today.