Ghost of If You Can Draw A Straight Line

[slimjim]

Hi Db,

I was wondering how you timed and executed your entries. If I take your first example on this thread, I can't determine how I would reproduce your entry. The attached screenshot might help you understand my confusion. I see a HH/HL much earlier than where you entered but I would have suffered a drawdown or stop whereas your entry felt no heat.

Thanks!

 

[Gringo]

Hi Db,

I was wondering how you timed and executed your entries. If I take your first example on this thread, I can't determine how I would reproduce your entry. The attached screenshot might help you understand my confusion. I see a HH/HL much earlier than where you entered but I would have suffered a drawdown or stop whereas your entry felt no heat.

Thanks!

slimjim,

The question you are asking is very valid and even shows that you're understanding it well. I am not sure where you are in your trading but it's a good sign that you asked this question.

The answer is that your first entry is also a valid entry. It might have had to be liquidated but is valid. Another thing is that at times these entries happen in the middle of the night when we're asleep and are not given by Db to be entries simply because he wasn't awake at that time. I can't remember whether this was the case in the example. At other times yes, the trade needs to be scratched if price fails to continue in the intended direction or starts falling. Some times it leads to exit with a small profit or an exit with a small loss. Usually there are not large losses.

Keep up the good work.

Gringo

 

[dbphoenix]

Hi Db,

I was wondering how you timed and executed your entries. If I take your first example on this thread, I can't determine how I would reproduce your entry. The attached screenshot might help you understand my confusion. I see a HH/HL much earlier than where you entered but I would have suffered a drawdown or stop whereas your entry felt no heat.

Thanks!

The entry was what it was because I wanted to start the new year with a clean slate. Therefore, the entry was made on the 1st as far as time but where it was made was due to prior conditions, e.g., the state of demand and supply.

You noted that the last demand line was broken at about 3586. According to the rules, the trader should then go short off the first retracement thereafter, which was the third bar after the top. The entry would have been the fourth bar, all of which was in December. This would have been stopped out four bars later for basically a scratch if the trader chose to exit on nothing more than that break. If instead he chose to stay in due to the fact that the break was so weak or because he was trading multiple contracts and sold only a part of what he had, he could then wait until the more definite break of the fanned supply line at the end of the next day. Once that supply line is broken, he then waits for a retracement to take his long, which is what the green dot, in January, represents.

I'm not used to people paying so much attention. Thank you for this question.

 

[slimjim]

Thanks Gringo and Db. I am a little surprised no one bothered asking that question before given it is an hourly based journal. By that I mean, with hourly, I assume no tape reading and no tick/ seconds chart was used to time the entry after SL break ... So onto more questions if you don't mind...

1) I attached the subsequent short. As with the first screenshot, how is the entry timed and executed? By that I mean, how was that middle bar (if I read the dot correctly) end up being where you short - it has HH and double bottom compared to the prev bar.

2) how do you decide a SL line break is a reversal or a continuation? Is the daily channel context used to help determine which way to bet? Whether or not a HL swing point after a SL break is achieved (for reversal)? pace of bars? length of bars?

Thanks!

 

[Gringo]

Thanks Gringo and Db. I am a little surprised no one bothered asking that question before given it is an hourly based journal. By that I mean, with hourly, I assume no tape reading and no tick/ seconds chart was used to time the entry after SL break ... So onto more questions if you don't mind...

1) I attached the subsequent short. As with the first screenshot, how is the entry timed and executed? By that I mean, how was that middle bar (if I read the dot correctly) end up being where you short - it has HH and double bottom compared to the prev bar.

The dot is below the low of the previous bar. Price dropped below that bar one bar later in the large drop bar. The whole idea is that price retraced upwards and then was dropping. The previous bar low as used as a reference to enter. Where the red dot it price was expected to drop there but didn't, but in the next bar it did drop below. (Note: it's possible that the dot is a little off considering the less that ideal charting capabilities of the free chart used). So the entry is around 3570 and below.

2) how do you decide a SL line break is a reversal or a continuation? Is the daily channel context used to help determine which way to bet? Whether or not a HL swing point after a SL break is achieved (for reversal)? pace of bars? length of bars

We don't know in real time whether a SL break is a reversal or a continuation. It's only by staying alert and observing price do we figure this out. So if one exited at the break of SL, a re-entry could be made to the short side when the price started moving down again. Although, a quick exit would be needed if price then failed to get to the previous swing low and instead turned up. Now someone who isn't in when the retracement begins, i.e., price breaks SL, goes up, then retraces downwards, halts, and moves back up, could enter there in anticipation of the downtrend being over.

This on the fly real time analysis requires some screen time to get one's head around it. It's not that hard but when price moves up and down a lot one is apt to lose one's mental disposition regarding the trend and its direction. So, screen time, some drills with the straight line method that you are learning should put things in perspective. Just observing price without regards to entry or exit but keeping the lines SL/DL in mind and the subsequent retracements, leading to continuation or trend change, are all one needs to get this thing sorted out.

Gringo

 

[dbphoenix]

A note.

The purpose of placing the buystop away from the trough of the retracement or the sellstop away from the crest is to force the market to come to you. If it does not but rather heads in the opposite direction, your entrystop is never triggered. Instead, you switch gears and wait for a retracement in the opposite direction, then place another entrystop there. If that isn't triggered either, then you've got chop.

You don't therefore have to concern yourself with reversals and continuations: the protocol takes care of that for you. All you have to do is follow price and let the market tell you what to do.

 

[slimjim]

Thanks again Gringo and Db. Excellent thread, I appreciate the effort you guys (and Niko) put into it and the rest of the family's threads!

I should be good to go now for replay starting with just observing price.

 

[regiom]

Nice thread Db, appreciate it, been following the SLA with interest. Have missed your analysis of entries on the hourly (the 1m is too quick for me) so in the spirit of the thread I've attached a chart of my interpretation of trading the 60m timeframe over the last week, hopefully drawing on the methodology you laid out.

1. Price falls through its steep DL, sell the retracement, cover on the breach of the subsequent (mini) SL. Whereupon, price appears to be within a trading range, so no trade until the range is broken on either side.

2. Price breaks to the downside, retracement and quick follow through down, short triggered. Covered at break of SL.

3. Standard retracement and long but price doesn't exceed previous high so covered with small loss, there being no DL in place at that time. Price then shoots through high and a new long initiated after retracement, scratched at breakeven after break of new DL.

4. Then it gets interesting. Wide ranging bars, a lot of volatility. In all honesty, I don't know what I would have done, there may be arguments for taking trades in either direction. Or possibly looking at a smaller timeframe (but wouldn't that negate the "simplicity" of the method).

5. Okay, after the fireworks, price achieves a higher high, buy the retracement, no compelling reason to cover, staying above mini DL, so hold.

6. Apparently bad reports/news hits price pre NY open, driving price rapidly through DL, hence the cover. Price rebounds strongly, retraces and long is taken, albeit reluctantly since price has moved so much and where would a sensible stop be? However, the trade worked out.

Yes, I know this all falls within the realms of couldawouldashoulda but am I on the right lines (pun definitely not intended!)?

 

[Roffe]

4. Then it gets interesting. Wide ranging bars, a lot of volatility. In all honesty, I don't know what I would have done, there may be arguments for taking trades in either direction. Or possibly looking at a smaller timeframe (but wouldn't that negate the "simplicity" of the method).

Note the different trend channels that have been brought up earlier. They should at least make you aware of the possibility of the reversal, and not take you completely by surprise.

 

[dbphoenix]

Nice thread Db, appreciate it, been following the SLA with interest. Have missed your analysis of entries on the hourly (the 1m is too quick for me) so in the spirit of the thread I've attached a chart of my interpretation of trading the 60m timeframe over the last week, hopefully drawing on the methodology you laid out.

1. Price falls through its steep DL, sell the retracement, cover on the breach of the subsequent (mini) SL. Whereupon, price appears to be within a trading range, so no trade until the range is broken on either side.

2. Price breaks to the downside, retracement and quick follow through down, short triggered. Covered at break of SL.

3. Standard retracement and long but price doesn't exceed previous high so covered with small loss, there being no DL in place at that time. Price then shoots through high and a new long initiated after retracement, scratched at breakeven after break of new DL.

4. Then it gets interesting. Wide ranging bars, a lot of volatility. In all honesty, I don't know what I would have done, there may be arguments for taking trades in either direction. Or possibly looking at a smaller timeframe (but wouldn't that negate the "simplicity" of the method).

5. Okay, after the fireworks, price achieves a higher high, buy the retracement, no compelling reason to cover, staying above mini DL, so hold.

6. Apparently bad reports/news hits price pre NY open, driving price rapidly through DL, hence the cover. Price rebounds strongly, retraces and long is taken, albeit reluctantly since price has moved so much and where would a sensible stop be? However, the trade worked out.

Yes, I know this all falls within the realms of couldawouldashoulda but am I on the right lines (pun definitely not intended!)?

Pretty good for somebody who's just starting to play with it.

But

1. Price falls through its steep DL, sell the retracement, cover on the breach of the subsequent (mini) SL. Whereupon, price appears to be within a trading range, so no trade until the range is broken on either side.

Why so tight? Opening night jitters?

3. Standard retracement and long but price doesn't exceed previous high so covered with small loss, there being no DL in place at that time. Price then shoots through high and a new long initiated after retracement, scratched at breakeven after break of new DL.

Actually there was a DL in place. All you need is two pts. If you want more, that's fine, but that's a choice, which is another reason to leave this discretionary rather than mechanical. One can't trade well if his stomach is in knots.

4. Then it gets interesting. Wide ranging bars, a lot of volatility. In all honesty, I don't know what I would have done, there may be arguments for taking trades in either direction. Or possibly looking at a smaller timeframe (but wouldn't that negate the "simplicity" of the method).

This is an excellent example of the desirability of using a daily for context. That would have provided you with a very-short-term trend channel, the mean of which was that burst up to 3470. This would not and should not have prevented you from taking the long, but at least you wouldn't be surprised by the reversal.

And, yes, last week was very interesting. But the activity at these trend channel extremes is always interesting. And if one knows what's going on, the profits are much easier. At least one isn't pushing the wrong side.

As for the CWS, that's what chart review is all about. Otherwise, what's the point? And if you're backtesting, what other way to do it other than study old charts? That's what backtesting is.

I take it you didn't recognize the climactic test of the lower limit of the daily trend channel. If not, include context in your work.

As for the reaction to Friday's report, this is partly a prep issue, a confidence issue, and a probability issue. Given that we had just tested an important trend channel twice, and given the rally the next day, and given the hinge that was formed toward the end of that day, and given the rally off that the next morning premkt, the probabilities favored just holding on and waiting for a kneejerk recoil, particularly since price would have to fall much more than this to put the long in jeopardy.

OTOH, safety first, and there was a subsequent entry, which you took, and which may just take us all the way to the upper limit of the trend channel since we're already past the mean, or at least were on Friday.

Looks to me like you've got the right idea. Just don't forget context. And AMT.

FYI, these are two of the charts I posted to chat Friday morning:

And a zoom-in of what was at the time the "hard right edge":