Eur and ES spikes

Quote from Zen Student:

There's the rub. If you know what is going to happen and how to analyse it correctly, you can indeed place consistently profitable and accurate trades in anticipation of this.

What you call "price action" is nothing more than what has happened in the past. This in itself does not give the future unless one can see the decisions which have been made, the reasons for the prior price action, and therefore where the market now needs to go (with a high degree of probability).

The answer is that you can use the market data from the past (price action) to predict what is likely to happen next, but only if you understand the "why" of the prior action. To say that it happened is not good enough. If you compare patterns visually only, you will be comparing things which appear to be the same condition to the untrained eye but which are totally different. This is why you see % success rates quoted for "pattern recognition" - a pattern "fails" z% of the time. If one was comparing like with like, the pattern would resolve in a similar way all of the time.

Your so called "price action" refers to two things: the prior market data, and a rudimentary method for interpreting it which is public knowledge. The limitations of this methodology are well known amongst professional traders...do some even use it to their advantage by setting traps for the unwary?

Lots of questions - your results will depend on how much responsibility you take for your thinking. Success or failure is a matter of thinking or lack of it. Opportunity open to all - happy hunting!
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Saying that price action is "only what happened in the past" (although, obviously, the decisions which you find so important also occurred in the past and, as such, can be revisited at any time following their having been made) completely ignores the fact of autocorrelation. Given that we know more autocorrelation exists in the market time series than the efficient market hypothesis would allow for, we can assume that it is possible for informed market participants to identify moments at which the persistence of price direction are more likely to occur. That analysis and identification is best done, I would argue, on the price series itself, not on some external factor to the price series. If a doctor wants to know how a patient is feeling, the doctor doesn't ask one of the patient's relatives (all things being equal, like the patient is able to communicate) the doctor asks the patient. Asking about the "why" of price movements is like asking the relative. Just ask the patient, i.e. the price series. It's actually basic common sense. That it is difficult is no argument against making the attempt.

I already told you the "why" for all price action: market participant disagreement. Knowing the cause for the disagreement is secondary. Why waste time examining secondary causes?

Price action need not be based on "pattern recognition", by the way.
 
Quote from Zen Student:

Easy way to test this. How about you give us 5 trading calls with entry, stop, and target. Any liquid futures market of your choice. Limitations is that the move must be called within 3 minutes of the entry signal being generated, and give a "decent" number of points (say >3 on the ES or >15 on the Euro.

I'll start.

Long ES 1375 STP 1373 target 1380.
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Given that it could take weeks for my method to generate 5 trading calls, I'll pass.

Besides, even if I somehow got all 5 right, would that make you say that I was right in my approach? No, you'd say I was lucky or that 5 is too small a sample size, both of which could also possibly be right.

I posted a thread about my results since I pretty much nailed down my methodology and all of its moving parts. Highwater mark return of 196% with max drawdown of 26% over 8 months.

FWIW, that short trade I mentioned as having triggered on the ES, had I taken it (remember, I said that there were certain factors leading me to believe it was a "false positive") would have been closed out 8 points to the good and the long Euro trade I mentioned (which I also suspected was a "false positive") is also to the good as of right now and would, at worst, be closed for a small loss, depending on what happens from here. So, I guess that makes me 2 for 2 on some level, but 0 for 0 in actual trades taken. But, it also validates (with an absurdly small sample size, obviously) my larger point that the divergence between the ES and Euro didn't really matter in the face of what price was saying. Price told me to go short the ES and long the Euro and, lo and behold, it looks like price was right. Right now, the ES for me is saying "stay out".
 
Quote from logic_man:
Given that it could take weeks for my method to generate 5 trading calls, I'll pass.

Besides, even if I somehow got all 5 right, would that make you say that I was right in my approach? No, you'd say I was lucky or that 5 is too small a sample size, both of which could also possibly be right.
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Okay - as you can see my entry call at 11.37 never moved more than 3 ticks (0.75 pt) adverse to the fill at 75 and has now traded 80 several times. I can do four more of these and it wouldn't take me weeks. There is at least 1 trade on the ES for 3 points or more daily (with a high probability) and at least 1 trade for 15 points on the Euro daily with the tools I have for understanding the market.

I would suggest that the best trader in a given market is the one who takes the most points per contract per day. The more understanding a trader has (market knowledge), the more conditions in the market are understood and can be traded with high probability outcomes.

When one understands the market to a high degree, one can see from where others have marked charts or posted trades what their level of understanding is. 5 trades from you would be enough to tell me where you are. It is also a big enough sample size that 5 trades with tight stops, risk:reward better than 2, and accurate targets called in advance would demonstrate to aspiring traders the value in endeavouring to understand.

This is what the original discussion was about - whether the reason for market moves can be understood and if so to what extent is it worth the effort to learn? I propose that nearly everything can be understood and that the value in understanding is the possibilities for accurate trading. Your counter proposition is that there are some things which cannot be known with sufficient accuracy or are hard to know compared to the benefits for knowing them - your case is that trying to understand the "why" gives insufficient benefit.

However, for you, it may take weeks to have 5 trading signals. This does not mean your signals are not valid or that you cannot make money from the market, but it does mean that your market knowledge and trading ability is less advanced than a trader who could make the same number of points per contract in a shorter space of time. If you need three weeks to generate 15 points on the ES (5 trades * 3 points per trade) and I can do it in the same market in 5 days then it follows my methodology is the better one.

In the end analysis it is down to what people want from themselves and the market. Both of us could make money in the above example, but by following different routes. The OP is trying to discern whether it is worthwhile to take the time and effort (no doubt it is not an easy task) to understand the "why". This depends on his individual objectives and the level he wishes to reach in trading.

I have reached a level where I understand the reason for the news based moves on Friday. This same understanding allows me to call accurately the ES as I did today. I can do this repeatedly to prove a point. I advocate for doing the work to reach this level of understanding as I have first hand experience of the benefits. You don't know the answers, but are taking the position that it is too much effort to acquire them compared to the cost of doing so. I thought us both making 5 live calls would show the audience the respective merits of our approaches, however I understand why you do not wish to do this.

Continued success in your trading.
 

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Quote from Zen Student:

Okay - as you can see my entry call at 11.37 never moved more than 3 ticks (0.75 pt) adverse to the fill at 75 and has now traded 80 several times. I can do four more of these and it wouldn't take me weeks. There is at least 1 trade on the ES for 3 points or more daily (with a high probability) and at least 1 trade for 15 points on the Euro daily with the tools I have for understanding the market.

I would suggest that the best trader in a given market is the one who takes the most points per contract per day. The more understanding a trader has (market knowledge), the more conditions in the market are understood and can be traded with high probability outcomes.

When one understands the market to a high degree, one can see from where others have marked charts or posted trades what their level of understanding is. 5 trades from you would be enough to tell me where you are. It is also a big enough sample size that 5 trades with tight stops, risk:reward better than 2, and accurate targets called in advance would demonstrate to aspiring traders the value in endeavouring to understand.

This is what the original discussion was about - whether the reason for market moves can be understood and if so to what extent is it worth the effort to learn? I propose that nearly everything can be understood and that the value in understanding is the possibilities for accurate trading. Your counter proposition is that there are some things which cannot be known with sufficient accuracy or are hard to know compared to the benefits for knowing them - your case is that trying to understand the "why" gives insufficient benefit.

However, for you, it may take weeks to have 5 trading signals. This does not mean your signals are not valid or that you cannot make money from the market, but it does mean that your market knowledge and trading ability is less advanced than a trader who could make the same number of points per contract in a shorter space of time. If you need three weeks to generate 15 points on the ES (5 trades * 3 points per trade) and I can do it in the same market in 5 days then it follows my methodology is the better one.

In the end analysis it is down to what people want from themselves and the market. Both of us could make money in the above example, but by following different routes. The OP is trying to discern whether it is worthwhile to take the time and effort (no doubt it is not an easy task) to understand the "why". This depends on his individual objectives and the level he wishes to reach in trading.

I have reached a level where I understand the reason for the news based moves on Friday. This same understanding allows me to call accurately the ES as I did today. I can do this repeatedly to prove a point. I advocate for doing the work to reach this level of understanding as I have first hand experience of the benefits. You don't know the answers, but are taking the position that it is too much effort to acquire them compared to the cost of doing so. I thought us both making 5 live calls would show the audience the respective merits of our approaches, however I understand why you do not wish to do this.

Continued success in your trading.
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Sorry, I can see that you are quite impressed with your trade and kudos, but I think you're making a bit more out of it than a single trade can bear.

So, OK, we'll keep the thread going until we both make 5 calls. Then, if anyone else has the stamina to follow them, they'll see whatever it is that a 5-trade sample enables them to see.
 
Quote from Zen Student:

Easy way to test this. How about you give us 5 trading calls with entry, stop, and target. Any liquid futures market of your choice. Limitations is that the move must be called within 3 minutes of the entry signal being generated, and give a "decent" number of points (say >3 on the ES or >15 on the Euro.

I'll start.

Long ES 1375 STP 1373 target 1380.
More...

I was trying to figure out your reasons for this trade, so here's what I came up with. This was all easiest to see using a range chart. Am I anywhere close?

Price made an overnight low of 1371.75.

Then after market open, even with all of the volume kicking in, it only got down to 1373.25 before running up to a new high.

It then retraced & formed a box-type formation, and it appeared this box would most likely create another higher low at 1374.

So you entered at 1375 in anticipation of a move up.

The 1373 stop would have been below the low point at market open, so that makes sense as a violation of that would negate the plan.

The 1380 target would’ve taken advantage of the stop orders & new buyers at the high-of-day at 1378.25.

Price also moved about 6 points on the previous 2 swings, so a target of 6 points on your entry would also be close to this amount.
 
Quote from logic_man:

Stopped out overnight at 1379.75
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If you're entering a trade near to the close of day, then is it not logical you are basing this on what you expect to happen at the next open? The only reason why you would enter short and hold overnight is if you were expecting a gap down and therefore do not consider you could get your trade on at an acceptable price at the next open.

If this is the case, why is your stop not RTH only? Overnight the ES follows the European markets and at certain places in the cycle the ES can give temporary upside overnight which is reversed leading to a lower open the following day. In such cases, your trade could be "right", but you are getting stopped out on price action which does not belong to the timeframe you think you are trading.

In this part of the cycle, the ES short side is very tired which is why I have posted a few times this week about not trading short and also not trying to sell lower opens as one is vulnerable to a squeeze. Yesterday the low for the first half hour was the low of day and anyone trying to short in this time would likely have been squeezed (day traders). I would not be selling closes and looking for gaps lower in this location, however if you had managed your trade based on the timeframe you entered on there was opportunity to get out with a profit at the start of RTH trading today when the market opened more or less unchanged and signalled that it was not going immediately lower.

Whatever the reasoning for your trade, this is not a cycle location where we are likely to have a big gap down. Consider that the prior three opens have been gapped down. Bigger picture we are in a bull market and this is part of a correction. Multiple gaps down in a bigger bear cycle can be bearish, but in this location it is unlikely to do it four times in a row!

See how much information one can get by asking some simple questions about our trading decisions? With this analysis, you now have a better idea of how to manage overnight trades, and an idea of which locations are less likely then others to have a gap down and follow through lower. This is why it is always worthwhile to ask the questions.


Long ES 69.50 stop 67.50 target 85.
 
Quote from Zen Student:

Long ES 69.50 stop 67.50 target 85.
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Hit market when 69.50 printed to get filled. Long at 69.75. STP 67.50. Filled 59 mins = 10.59 EST 09.59 exchange time.
 

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Quote from Zen Student:

If you're entering a trade near to the close of day, then is it not logical you are basing this on what you expect to happen at the next open? The only reason why you would enter short and hold overnight is if you were expecting a gap down and therefore do not consider you could get your trade on at an acceptable price at the next open.

If this is the case, why is your stop not RTH only? Overnight the ES follows the European markets and at certain places in the cycle the ES can give temporary upside overnight which is reversed leading to a lower open the following day. In such cases, your trade could be "right", but you are getting stopped out on price action which does not belong to the timeframe you think you are trading.

In this part of the cycle, the ES short side is very tired which is why I have posted a few times this week about not trading short and also not trying to sell lower opens as one is vulnerable to a squeeze. Yesterday the low for the first half hour was the low of day and anyone trying to short in this time would likely have been squeezed (day traders). I would not be selling closes and looking for gaps lower in this location, however if you had managed your trade based on the timeframe you entered on there was opportunity to get out with a profit at the start of RTH trading today when the market opened more or less unchanged and signalled that it was not going immediately lower.

Whatever the reasoning for your trade, this is not a cycle location where we are likely to have a big gap down. Consider that the prior three opens have been gapped down. Bigger picture we are in a bull market and this is part of a correction. Multiple gaps down in a bigger bear cycle can be bearish, but in this location it is unlikely to do it four times in a row!

See how much information one can get by asking some simple questions about our trading decisions? With this analysis, you now have a better idea of how to manage overnight trades, and an idea of which locations are less likely then others to have a gap down and follow through lower. This is why it is always worthwhile to ask the questions.


Long ES 69.50 stop 67.50 target 85.
More...

Cycles are too inexact, due to the existence of standard deviations within them. I only deal with precise measures. The trade was barely viable under my model and losses are part of the game. None of what you wrote matters to me. Cycles, European market, gaps, etc. are all accounted for by other means in my model, which encompasses all trading, not just RTH, so your "questions" have already been asked and answered. The fact that the answers, in this case, led to a 2.25 point loss is just part of the reality of dealing with probabilities.
 
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