I think I figured out why trading can never work for so many people

[HurricaneUS]

Quote from WoodyK:

... I have a friend (who recently died of a brain tumor) who begged me for years to "share." I was tempted but never did, thankfully. Years later I learned, from one of his friends, he intended to write a friggin' book and include what I would have revealed to him to the world.

the guy was dying of cancer and you still wouldn't throw him a bone?...man that's brutal

 

[NoDoji]

Quote from ChkitOut:

i guess with the ema trend strategy you described, the grey area would be what constitutes a previous high break in a strong trend because prev highs are being taken out constantly as there is no deep pullback.

as Wednesday would it be valid to look for a 1 min ema pullback at all these prev high breaks.

In a really strong trend, price doesn't pull back much. This is where inexperienced traders just watch price run and run without them and they have no idea how to get in. They want a deeper pullback, but if they get a deeper pullback they think it's a trend reversal and won't get in there either.

More common, though, is beginners trying to pick tops or bottoms. Price pushes to a new high that feels "too high" and as price pulls back a little bit (usually a bar or two in the opposite direction on the small time frame, like a 1min chart), they think they're catching the reversal. In fact, they're entering where the trend followers are about to add to their winners. That's why even buying a new high or selling a new low in a strong trend works so well. Worst case, you can get a scalp off the counter-trend traders' stops being run, or can exit b/e at some point if the trend weakens. In a strong trend, the market nearly always makes a second attempt at the last new high or low before reversing. Strong trends do not die easily, unless a very key level is hit (such as a 60-min or daily S/R level), or a true reversal setup confirms.

Here are some of the ways I've entered in strong trends (uptrend for example):

> Buying the break of that last new HOD that printed (buy stop)

> Buying the close of the first 1min pullback bar following a strong push up (marketable limit order)

> Buying a couple ticks above the previous high (limit order) (this would be a couple ticks above the arrows on your chart after price breaks those levels)

Before I had a lot of price action trading experience I would watch a strong trend run and run without me. I once watched an uptrend in oil for two hours, waiting for a reversal setup to sell short, because the inventory report was "bearish".

 

[bmwhendrix]

NoDoji,

Why keep looking for new setups? Why not focus on the few you have that work well for you, and work on approaches to increasing size?

 

[NoDoji]

Quote from bmwhendrix:

NoDoji,

Why keep looking for new setups? Why not focus on the few you have that work well for you, and work on approaches to increasing size?

For one thing, so far I've been unable to overcome mindset issues related to increasing size beyond a certain level.

FWIW, I do trade one of my setups with larger size because there's great liquidity and it's my best-performing setup.

 

[WoodyK]

Quote from NoDoji:

In fact, that's how I trade this setup with oil. Oil can't be trusted.

Ha Ha, that is so true. I got my "grubstake" back in the 80's shorting Crude when margin was $1,000/barrel down to exactly $9.95. It was a pure lucky trade- I didn't have a clue back then. Thought indictors were the holy grail. I even read Larry Williams book. LOL

I can only figure Crude long term- that is fairly easy for me (and a lot less work too).

 

[ChkitOut]

nodoji,

what do you think about wedge 2nd entry reversals on the 1 minute??

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3750908>

 

[jl1575]

Very detailed and experienced setup, and I am sure you execute setups like these daily with great success.
However, though this bar-to-bar analysis could bring you decent profits, however, it takes a lot of mental and psychological effort/stress to execute every trade with such a system. On the other hand, there is huge computing power available, and it could really work magic and make trading much easier, more profitable and enjoyable. It would be a great waste not to take advantage of such powerful resource that was not there 20 year ago. In any event, I would agree that you have a great feat in establishing and executing your bar-to-bar system with consistent success.

Quote from NoDoji:

1. 5min time frame, rising 20EMA, place a buy stop 1 tick above the last new high, with a profit target equal to the stop loss. The size of the stop loss will be dependent on the instrument traded; do your own statistical research to determine the size stop that keeps you in most of the trades that successfully hit a profit target equal to the stop loss (it's a bit like a middle school math problem, meaning anyone of average intelligence should be able to figure this out for a given instrument).

2. 5min time frame, rising 20EMA, price breaks the last new high by more than just a few ticks, cross-check a 1min chart with a 1min 20EMA on it and when price pulls back to within a couple ticks of that 1min 20EMA without breaking a previous 1min swing low, place a limit order to buy a tick above the value of that 1min 20EMA, with a profit target equal to the stop loss. The size of the stop loss is determined as described above for your chosen instrument. It should not have to be very far below that 1min 20EMA. If price closes below the 1min 20EMA after an entry is triggered, and the stop is not hit, place a limit order to exit the trade break even (if possible). If price breaks a previous 1min swing low after an entry is triggered, placing a limit to exit break even is optional. As long as the 1min 20EMA isn't breached, the trade is still valid.

For down trends (falling 20EMA), simply reverse the process.

So these are two things the market does over and over intraday that have a positive expectancy (price hits profit target before hitting stop loss more often than not). You'll likely find that for most instruments, there's room to increase the profit target beyond the even R:R ratio.

Let's look at Friday morning (the first two to three hours of the day is generally the most technically reliable time window to trade) and see how to apply these two tactics to the ES, using an 8-tick stop and target.

Trade 1) In pre-market we have a mildly rising (nearly flat) 5min 20EMA which is pulled slightly downward by a rapid range breakdown at the market open. Since this is a strong new low in a well-defined overnight down trend, at the close of that bar we can immediately employ…

Tactic 1: We place a sell stop @ 1499.50 (1 tick below that new low).

Tactic 2: During the 9:43 bar price pulls back to within a couple ticks of the 1min 20EMA and we place a limit order to sell 1503.00.

We are definitely filled by the 9:47 bar, but price closes above the 1min 20EMA during that bar (an also breaks the high of the previous 5min bar, meaning a deeper counter-trend pullback is likely), so we place a limit to exit break even and the trade is scratched prior to the stop loss being hit.

Trade 2) Price breaks through the 5min 20EMA and the overnight down trend line during the 9:55 bar, which pulls the 20EMA slightly upward. We have a possible trend reversal, and watch the price action to see if previous resistance (1507.25) and/or the 5min 20EMA (around 1505.25 at that point) can hold as support. If the trending move is really strong, price may not even pull back to those levels, but in the early stages of a possible new trend, price will most often stage a pullback to one of these levels.

Tactic 1: We place a buy stop @ 1510.25 (1 tick above the last high).

Tactic 2: Does not apply because we haven’t yet broken a previous high in a rising 5min 20EMA environment. The break of 1507.25 resistance simply widens the premarket range that broke downside. We could end up with nothing more than a wider range. We need that initial high in the rising 20EMA environment to break before applying this trend continuation tactic.

The 5min 20EMA support levels holds and price moves to test the previous high. We’re filled @ 1510.25 during the 10:30 bar and our 8-tick profit target is achieved during the 10:36 bar.

Trade 3) We now have a confirmed uptrend (a higher low followed by a higher high that isn’t a failed breakout of just a few ticks).

Tactic 2: During the 10:47 bar price pulls to within a couple ticks of the 1min 20EMA and we place a limit order to buy 1511.75.

In the meantime, while we’re waiting for a fill, a 5min inside bar prints at 10:45 bar close. It’s an inside bar (bullish) and it’s a 5min pullback bar (the close is lower than the open), so we can consider the 1513.75 high of the previous bar to be our new high print and add Tactic 1 in case the trend is too strong for price to fill our limit order.

Tactic 1: We place a buy stop @ 1514.00, 1 tick above the previous high.

We’re filled @ 1514.00 during the 10:53 bar and our 8-tick profit target is achieved during the 11:00 bar.

Trade 4) Price pulls to within a couple ticks of the 1min 20EMA during the 11:08 bar.

Tactic 2: We place a limit order to buy 1515.50.

We’re filled during the 11:09 bar, but price breaks the previous 1min swing low of 1515.50 by a tick. We have the option of a) scratching the trade break even if price fails to rally off the 1min 20EMA, b) stopping out for a 2-tick loss if price breaks the 1min 20EMA before testing the high, or c) trying to get out break-even if price closes below the 1min 20EMA without hitting our stop.

Since the break of 1515.25 is also the break of a 5min bar following a measured move overshoot in a strong trend, my discretionary choice here would be to stop and reverse counter-trend short @ 1515.00 to take advantage of a deeper pullback to the 5min 20EMA. However, note that even taking a full 8-tick loss still leaves you with an 8-tick profitable morning using two common with-trend scalping tactics.

This is one of dozens of positive expectancy day trading methods based on the market doing something over and over again more often than not, though the distribution of winning and losing trades may be quite random at times.

 

[WoodyK]

Quote from jl1575:


"it takes a lot of mental and psychological effort/stress to execute every trade with such a system."

I've been doing this 40 years and yesterday I worked my ass off trying to make money in the E-mini and the long Bond. There's no short cuts- at least not for me. And I have 3 server level computers running 24/7 which do some of the work.

 

[baro-san]

Quote from ChkitOut:

i appreciate your as usual quality posts.

for a new trader this is at the heart of the matter of why she will get frustrated and quit. because logic will lead her to the next question.. she will say, "someone show me one thing the market does over and over that puts the odds in my favor. certainly there has to be someone out there that can show me one pattern, setup, or whatever you want to call it." just like the piano player has countless examples of music sheets of previous master piece songs

but she will never get an answer and so frustration builds until her trading career bursts before liftoff.

Ballroom waltzing: B2BRB R2RBR ...

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3750939>

 

[NoDoji]

Quote from ChkitOut:

nodoji,

what do you think about wedge 2nd entry reversals on the 1 minute??

Looks like what I call a 1-2-3 setup on the 1min chart and I use this setup frequently to enter trades and to take profits at certain key levels.