Quote from bilbod:
I don't know what set of rules you used for your backtesting but if you are not following all of jjrvat's rules and guidelines, you are not testing his system.
240 WMA (slow)
21 HMA (fast)
Go long when slow MA is up and fast MA turns up if HHHL (PBP) pattern is present. Ignore long entries if PBP pattern is not present (so you don't go long when fast MA turns up after a lower low, for example).
Entry is opening of first bar after slope changes.
Exit is when the fast MA changes slope (so when it turns down while you're long). Exit is the opening of the first bar after the slope changes.
Contrary to what people like to post on their charts, you cannot enter or exit on the first bar of a slope change because you don't know that the slope is changing until the bar closes. I've had bars reverse when the countdown timer says "1" remaining.
Opposite for shorts.
edit - Oh two more rules I forgot:
1. First trade is the first valid entry after 8:30 CST. Valid morning trades take into account yesterdays price action, so only go long in the morning if it's after 8:30CST
and your chart is showing that this long entry signal is following HH and HLs from yesterday.
2. No entering new trades after 2:30pm CST (30 min before market closes) because the price does weird stuff then and there are tons of times when you'll lose money taking valid signals. It's ok to stay in a trade that was opened before 2:30pm CST until the exit signal, you just don't enter any new ones after that time. If you're still in a trade at 2:55pm CST (5 min before market close) you exit.
Using those parameters, having set target profits of 2, 3, 4, 5, 10, and 15 ticks leads to negative expectancy. It lead to an increase in number of winning trades, however. But it's the occasional +40 or +100 or whatever tick trade that leads to positive expectancy.
I read this thread a lot of times and the gist I got was "price moves in waves / enter after HHHL or LLLH when the price resumes its macro direction / use 240 WMA to determine macro direction and 21 HMA (or whatever fast MA) to determine wave movement"
All my backtesting was done on YMM8 and YMU8 with 500 constant volume charts.
If you want to learn how to trade price action, the best advice I can give you is to take all the indicators off your charts and focus on price action.
Maybe I need to do that.
Now let's look at the 1st chart you posted with the losing trade (reposted here for convenience). Based on price action, I would not have taken that trade. Why? It is a high risk trade.
We are late in the trend (how do I know that?).
I don't know how you know that. Because the trend has been going on "for a while?" I have had numerous consecutive +30 tick trades that all followed PBP (LLLH) that were "late in the trend." Or maybe they weren't. I remember being scared to enter because I thought the price had gone down so much already, but since they followed PBP setup I entered anyway and made a ton of ticks.
edit - nevermind I see you explained "late in a trend" here:
Whenever you have 3 or more waves in 1 direction without a significant correction, you are late in the trend.
Nobody knows in advance what prices will do. You should be looking to take entries with high probability of success and low risk.
So not entering after the 3rd wave in a trend?
A retracement of a previous wave is a low risk, high probability set up for at least a tradeable bounce, in this case you could have gotten a lot more.
Sounds like trading in the opposite direction of the macro trend. I've seen jjrvat post pics of this but I haven't actually tried that yet
Do not let even a small profit turn into a loss.
I never understood this "rule." On the second chart I posted I had to first incur a loss (20 tick drawdown) in order to make a profit.
Had I "not let a profit turn into a loss" i would've exited that trade and not made anything on it.
And doesn't that rule technically mean that as soon as a trade goes +1 tick in your favor you have to put a stop at breakeven? I don't know any instruments that trade slowly enough for that to work. The price flutters +/-2-4 ticks at all times on every instrument I've ever seen. Unless you get lucky during news it's impossible to never have a trade not ever show a temporary loss due to this "price flutter." Maybe I'm taking that too literally.
Price Action trading is discretionary, that means to be successful at it, you need to learn to interpret what current price action means.
I have difficulty with discretionary trading. I don't like "what ifs" and I don't like room being open for interpretation. It's too easy when you're wrong to go "oh, I interpreted that wrong," which is a cop-out and you learn nothing. In a 100% mechanical system, if you're wrong, it was just a statistical rarity, and if you're wrong often, the system needs tweaking to give better signals. There's no "oops I interpreted that wrong lol silly me maybe I'll do better next time."
