Day-Trading 2.0 for small traders

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Quote from jjrvat:

Momemtum Conditions

I find 3 fundamental conditions behind what I call momentum as a variable that if they are understood correctly may help you moving beyond only wave’s analysis.

1. The first condition is to determine if a wave will have momentum is given by wave analysis. HH, HL and LH and LL are indispensable. As you know it doesn’t mean that they are many big moves that they don’t require this condition, but in order to be consistent with your trading plan you need quantifiable objective and statistically favorable measures.

2. The second condition is the range of your waves (“volatility”) and is given among others from your instrument, timeframe and time of the day. You need to calculate what are the probabilities of moving a certain amount of ticks in a wave that have satisfy your first condition (screen time, screen time, screen time, experience, a little of past statistical analysis). For example in this Fdax chart (only for this chart) I can tell that it will have 100% chances of at least moving 3 ticks to your side, 94% of moving 10 ticks, 82% 18 ticks, 53% 27 ticks, 22% +35 ticks… Knowing this doesn’t mean capturing all available ticks… we are only talking about momentum not timing. [**** this numbers are calculated as soon as a bar has changed color to the opposite]
Only when you know this measure you can apply money management rules. So your capital, risk aversion, maximum drawdown, P/L ratio, etc. they all come in to play determining if this particular chart (timeframe, instrument, time, etc) are convenient for your trading plan.

Using the same example a healthy ratio for trading this chart is 5 full point max target (10 ticks), assuming a not so good 1 to 1 ratio, with at least 2 contracts to scale out (5 ticks half and 10 ticks the last half) but you will be aiming to trade each with a very good W/L % (around 97% of hitting both targets if you have a perfect entry, realistically it will be around 95% for the 1st target and +/-81% for the jackpot). Points A, B, C, D reflect entries that satisfy these 2 momentum conditions

3. The final condition and again respecting the order of analysis is given by price again. In order to validate a momentum not only conditions 1 and 2 has to be satisfied but also you need to determine exhaustion areas where your minimum wave range CANT be achieved because price is approaching to certain areas where it needs further confirmation to continue or reverse (or whatever you want to call it). I am not going in details on how to do that (if you don’t know how to analyze this you need to gain some more experience before you move on) but obviously price based tools are much better for short term trading (fundamentals for longer timeframes): S/R lines in a higher timeframe, trendlines, H lines at round #, pivots or even fib lines, murray math, etc.
In this example I will use Daily Pivots and the 240 WMA as key exhaustion areas. As you can see points marked with red X although satisfy the 1st and 2nd momentum conditions they DON’T satisfy this last one (the 1st X is only 8 ticks away from S1.5 and the 2nd 3 ticks from S1 and 8 to 240 WMA).

From a strictly momentum perspective only trades A, B, C, D are valid, trades marked with X only meet 2 conditions so it shouldn’t be consider and the rest of the trades don’t satisfy any of the conditions. As you can see the name of the game is patience and consistency, if you at least respect these minimum momentum conditions and mastered this second variable in a trading equation you will be miles ahead in terms of trading and without even considering timing.

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jjrvat
PS: Btw I am only marking the 100% clear trades, there at least 2 extra perfect valid entries but the focus was only on momentum
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Great hearing from you again jjrvat, and as allway - excellent posts!!
 
Iam a intraday trader, i have a doubt about two companies of trading, swifttrade and title, i want to know wich is better(good and bad things), and why ,please, if you heard about please:confused: :confused:
 
jjrvat is that the Heikin-Ashi candles based on HMA?

I am interested to know how you use these.

It seems that HA candles already deviate significantly from actual price (highs and lows don't reflect the actual highs and lows from that time period) and HA candles based on an MA, while super smooth, are very often significantly different from actual price. In my experience, when the HA trend has changed, the actual price is already going back in the opposite direction.
 
veggen, Alegnus

Thanks.

It’s a little more “messy” than just HA candles. This chart is a 3LB with normal HA candles based on a 2 period Wilders smoothed “HA candles” ("FHA" candles). If you have SierraCharts you can search the free FHA.DLL I posted somewhere in their support board.

Alegnus, IronFist

The aim of this chart was explaining momentum not a trading chart but yes, in general you are 100% right in your comments.

Nevertheless, I posted 2 charts so you can compare where the key momentum plays are, you should pay more attention to the 1st. The 2nd chart is not necessarily a trigger chart (timing) but if you are sharp enough you can use it to spot where a reversal has complete and a new round of shorts would have started in the naked chart.

Look the “Devil is in the details”. For example, study the area between 10:10 and 10:22 if you want to read the same 100% clear end of the reversal in the naked chart in the smoothed chart you have to look at the LOWS not the colour of the candles.

In my perspective the visual effect created with this chart is not given by how perfect green and red candles show waves but if you pay attention to detail is on how the up candles have a higher lows (or equal at the extremes) and the opposite for down candles. (*** This is achieved because the 3LB component doesn’t plot all prices above a green candle or below a red candle but will always plot the prices below a green candle /above a red)

So obviously the key point to watch in the example (10:10 / 10:22 and all the others) is the break of the last bar low not an opposite colour bar forming. As you can see this point will 100% correspond with the point in the naked chart where price failed to make HH and a few bars after broke the last Low making a 100% confirmed LH and LL.

jjrvat
 
jjrvat
Thank you very much for such a great educational thread.
It has became a classical one and already referenced in
many trading forums as one of the best.
Happy I'm, that I've found it and reading and re-reading
it now, and it really helping me to look at many basic
trading everyday things from a completely new wonderful prospective.

Just a question:
You have mentioned in the begining of this thread, that this technique (or approach or method)
is not applicable to Forex markets.

I'm wondering - why?

Is it just because of luck of volume
information for Forex or something else?
But there are such things as ATR and Level II (on ECN brokers) -
which may substitute volume at some extent.

Could you give more details about - how it will work (or not)
on Forex and why.

More generally, could you list (from your knowledge) -
which other markets/instruments your method cannot be
applied to? (assuming it is applicable to most, but still
want to know all the exceptions (if any)).
 
To be honest, I havent read the ENTIRE thread, but read alot of it, but the remarkable thing that strikes me is that looking at along of the chart examples, how truly amazing price action coupled with S/R is.

I also find the themes similar to Anek's PA thread, its just that moving averages arent used, but the underlying premise seems to be very similar...

MA's are used to help identify the overall trend or choppy period (if flat) or guage the strength of a move. Using self drawn trendlines can also do this IMO in a similar fashion.

Both great threads!
 
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