Establishing a trend

K

Kiwiboy

There's been some good stuff posted on ET about determining trend and trading it accordingly..oh! and making heaps of bux!! :cool:

I'm trying to get the hang of this trend recognition thing and was hoping to get some feedback/abuse/whatever from the experts so I can become better at this. dbphoenix, I hope you can provide some comment as you have written great stuff on this in the past.

Pls have a look at the today's ES chart attached and provide advice/thoughts on the approach and obvious pitfalls.

I'm using a 10 min chart and firstly I'm worried that this may be too long a timeframe, but any shorter makes it more difficult to see the patterns.

Anyway, I'll try and get a chart posted each day and see if I can get overall improvement.

Note that the only major S/R I have consiedered the last couple of days has been from the 11/20 high around the 1046 mark - this is illustrated on the 1st graph. However the triple top at 1060 may come into play again soon.
 

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There's nothing right or wrong with the "approach" per se as it's a matter of choice based on your testing and your goals.

Covering at the first sign of weakness, for example, is fine if you want to take profits quickly and scaling in/out is not part of your strategy. A lower high, however, does not mean the end of a trend. At most, it simply means a loss of momentum, and that loss may be temporary. As you note, the trend has not reversed - at least according to Sperandeo's definition - until the last reaction low has been breached. If you're daytrading, however, waiting for that can mean an unnecessary loss of profit.

Therefore, you have a number of questions to deal with. Do you want to enter and exit trades intraday or do you want to hold them overnight? What timeframe do you prefer to work in? What bar interval do you prefer? What are you doing about stop placement, if any? How much risk are you willing to assume? What are you going to do about gaps? None of these have anything to do with trend as such, but you're going to find hanging on, much less entering, very difficult unless you approach them honestly.
 
your timeframe is fine. it doesn't really matter as long as you are trading your timeframe. i would suggest trading the 5 min instead, but that's just my style.

see the ~1:30 break of the 20 sma? that's your first sign of a reversal, put a SAR below that.

good luck!
 
Quotes from dbphoenix:

Covering at the first sign of weakness, for example, is fine if you want to take profits quickly and scaling in/out is not part of your strategy.

Without trying to sound obvious, I'd rather let profits run if I can but scaling will be the hard part if only trading the 1 car.


A lower high, however, does not mean the end of a trend. At most, it simply means a loss of momentum, and that loss may be temporary. As you note, the trend has not reversed - at least according to Sperandeo's definition - until the last reaction low has been breached. If you're daytrading, however, waiting for that can mean an unnecessary loss of profit.

I know what you're saying - waiting for that last reaction low can often mean getting out for just under b/even, unless of course price trends the same way all day. I'm planning on a profit target of +8 - that number seems to come up regularly in my backtesting.


Therefore, you have a number of questions to deal with. Do you want to enter and exit trades intraday or do you want to hold them overnight? What timeframe do you prefer to work in? What bar interval do you prefer? What are you doing about stop placement, if any? How much risk are you willing to assume? What are you going to do about gaps? None of these have anything to do with trend as such, but you're going to find hanging on, much less entering, very difficult unless you approach them honestly.

My intent is to not hold overnight - in and out on same day, and hence why I was a little worried that 10 mins is slightly too long a timeframe to be daytrading. I'd be more comfortable with 3 mins, but I just find it a lot harder to see the waves - the 10 min seems to get rid of a lot of noise. I would have a disaster stop in place just in case my system crashed or the like, but I envisage trades not being stopped, rather I will get out on breaches of reaction highs or lows depending on whether I'm short or long resp. Haven't really considered gaps - I was just gonna sit out the first half-hour each day and let the price sort it out itself.

The biggest issue I can envisage is entry - just how do you know (esp on a 10 min bar) when the first higher low or lower high has been put in place and you can hit your Buy or Sell?

Thanks for the comments...
KB
More...
 
Quote from funky:

your timeframe is fine. it doesn't really matter as long as you are trading your timeframe. i would suggest trading the 5 min instead, but that's just my style.

see the ~1:30 break of the 20 sma? that's your first sign of a reversal, put a SAR below that.

good luck!
More...

thanks funky! i would prefer to trade a smaller t/frame as it would make entry a lot easier, but I find it a lot harder to see the flow of the waves. i guess i should just use 2 or 3 (maybe 3, 5, & 10) and work something out

KB
 
Quote from Kiwiboy:

I know what you're saying - waiting for that last reaction low can often mean getting out for just under b/even, unless of course price trends the same way all day. I'm planning on a profit target of +8 - that number seems to come up regularly in my backtesting.
More...

You're confusing your goals. If you're going to trade trend and you're going to trade only one contract, then your primary goal is to trade the trend properly, which makes profit targets secondary, as a lot of your trades are going to end up at BE. Focus on proper entry and exit. When you have that down, you can then add at least one contract and not be forced into a position where it's all or nothing.

My intent is to not hold overnight - in and out on same day, and hence why I was a little worried that 10 mins is slightly too long a timeframe to be daytrading. I'd be more comfortable with 3 mins, but I just find it a lot harder to see the waves - the 10 min seems to get rid of a lot of noise.

The biggest issue I can envisage is entry - just how do you know (esp on a 10 min bar) when the first higher low or lower high has been put in place and you can hit your Buy or Sell?
More...

First, don't confuse timeframe with bar interval. The timeframe is the span of time in which you are interested, in this case, a day, though it may be only 90m. Trend is dependent entirely on timeframe. If your timeframe were a month, for example, we've essentially gone nowhere. But that is of little interest to a day trader.

Second, don't be distracted by the "wisdom" spouted by "gurus" about noise. There is no such thing as noise. It's all information. The problem may be that you don't understand what the information is telling you. Or that your targets are inappropriate to the bar interval. What is more important than any consideration of "noise" is whether or not the bar interval gives you time to think. If you find yourself in a state of perpetual near-panic, then your bar interval is probably too small.

You are not limited, however, to 3 or 5 or 10. If 5 is too small for you but 10 seems like watching grass grow, try 7.

As for the HL and LH, you don't know until the bar is finished, which is why you might want to consider a smaller interval. At the very least, maintain a chart with a smaller bar interval alongside so you can see what's going on "underneath" your primary chart.
 
Quote from funky:

see the ~1:30 break of the 20 sma? that's your first sign of a reversal, put a SAR below that.
More...

Even if a violation of the last reaction low ensured a new trend direction, an SAR would not be appropriate unless he were trading breakouts. He might want to wait for a retracement and short the lower high.
 
Quote from dbphoenix:



Even if a violation of the last reaction low ensured a new trend direction, an SAR would not be appropriate unless he were trading breakouts. He might want to wait for a retracement and short the lower high.
More...

true, a better risk/reward entry would be to reverse after price crosses the 20sma and then reverses back over to test the last high. then you could treat the breakout the other way as a confirmation.
 
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