But every edge will falter at one point.
Nothing is 100% consistent.
Markets are dynamic, they don't care about your edge.
If that were the case we would have a trillionaire.
If you could go back in time to when you were a new trader
- Thread starter TheGreatGorilla
- Start date
But every edge will falter at one point.
Nothing is 100% consistent.
Markets are dynamic, they don't care about your edge.
If that were the case we would have a trillionaire.
Well, if you skim through the trolls, it's considerably shorter.The third thread was begun (a) because so many people had so much trouble understanding basic supply and demand, i.e., up and down, and (b) because the fears that they had developed over time prevented them from being able to exercise any discretion at all. So I got into scratching, for one thing, in order to enable them to rack up some successes in getting into trades at the right time and getting out immediately, without hesitation, as soon as the trade began to change its character, without hope or fear or greed (all of which are essentially fear, but that's another subject) or the interference of ego. Once they learned that they were in complete control of their trades and that there was nothing at bottom to be afraid of (other than not following their trading plans), they could then loosen up and exercise more discretion.
As to the "strict hard rules" themselves, plot for example a supply line (Wyckoff called it a "resistance line"; the jargon is unimportant) . When it's broken, get out and wait for the first retracement, if any, and go long at that retracement. If there's no retracement, do nothing. Just watch. Do the opposite with a demand line (or "support line"). And if there's no momentum behind the entry, again get out. Scratch. Wait.
There's more to it, of course, depending on the bar interval chosen and the instrument and so on, but that's the 3x5 card version. If you don't feel like wading through all those posts, take a look at Game's Making of a Method. It isn't what I would call short, but it's unusually troll-free.
By the beginning of the 2nd quarter 2009 I was indeed so "damaged" that I realized I needed to actually learn how to trade, specifically with an edge that doesn't disappear. I was still green and fairly clueless. I was distraught because I thought I knew all there was to know and I realized I knew very little and for the first time since starting to trade I had serious doubts about my ability to succeed.
I'm forever thankful to Bighog for mentioning a book call Reading Price Charts Bar By Bar. He told me it reminded him a little of what I was trying to do. That recommendation got me started on the path to trading price action and eventually resulted in me discovering an edge that is dependent on nothing more than a trading instrument in which price goes up and down by at least N ticks each day (basically, anything).
Because I was so damaged it became apparent that I had to come up with a strict plan, very strict rules, and develop the discipline to follow it. Others like dbPhoenix never went through that, so they weren't working from a "all dogs are dangerous" mindset (read Mark Douglas) and could trade more flexibly, though still within a positive expectancy framework.
My edge is based on trading in a way that's very similar to Bighog and dbPhoenix. From what I've seen it's just classic price action concepts; the two of them aren't much different in how they read the market.
I received a PM from someone who told me they'd been trading a long time and could not find a way to make it work. He said he doubted anyone could trade for a living. He seemed to be where I was back in 2009, the difference being, I'd watched a couple people be consistently profitable for at least a year, so I still had a seed of hope that it could be done. The guy who contacted me saw only randomness in the market, and was concerned that common price action setups seemed to be a 50/50 proposition and that they looked different every time.
I'll post my response to him here (with some parts bold for emphasis) because I think it will help clarify price action trading for those who really have no idea what it means:
"I believe the reason you've been a failed trader...is because a) you take your setups based on "feel" instead of rules based on odds in your favor and, b) you haven't learned how to recognize certain patterns in certain context that place the odds in your favor.
Let's say a trend line, flag, or triangle breaks with conviction (more than N ticks, with N being dependent on the instrument you're trading). The trend line, flag or triangle is the price action context, and the break with conviction is the signal. Now you watch for the setup and as soon as it appears, you place your order in the direction of the breakout. If the setup doesn't appear, you wait for further clarity.
I'll give you an example using yesterday's price action as viewed on the 5-min and 1-min charts of the oil futures I trade (currently the CLG4 contract): (This is Friday 1/10 action, BTW)
Connect the overnight swing highs and swing lows on the 5-min chart prior to the NYMEX pit open (9:00am eastern time). This forms an expanding triangle formation with higher lows and higher highs (price action context).
Just before the pit open, price breaks through the rising upper trend line with conviction (long signal). The high probability pattern (setup) to watch for is a pull back to the upper trend line and a price turn back upward off that level.
I watch the 1-min chart to catch an early turn off that level thereby keeping my risk small. During the 8:55am ET bar price touches that line and I place a buy stop above the previous 1-min bar's high. When the 8:55 bar closes, I trail my buy stop just above that bar's high. You see, I'm waiting for buyers to step in at this common area of technical support and sweep me into a long position in the direction of the previous breakout.
Since this never occurs, I never end up in a long position, thereby avoiding the loss I would've taken if I assumed the trend line would hold as support.
Instead price breaks the trend line to the downside with conviction. What does this mean now? It means that price is likely to test a lower previous support level because now there's no value for buyers until that level is reached. There's a lower trend line across the 7:55 and 8:30 swing lows likely to attract buyers and it's around 92.70 at the time of the downside break.
When price gets there, buyers make a very weak attempt to stop the selling just as the pit opening action begins, but they fail and this lower trend line breaks with conviction during the 9:03 bar. I'm never swept into a long position and I avoid any loss that I would've incurred if I assumed price would find support at that LTL.
Now that the LTL has broken, I looking for a short entry. I watch for price to pull back to the lower trend line because it should become resistance in the new possible downtrend. This occurs during the 9:10 bar. I now trail a sell stop below the low of each 1-min bar and I'm swept into a short position at 92.69.
There's a deeper lower trend line around the 92.50 price level from the swing lows further back in the overnight session and this is my profit target.
This is how one high probability method of profitable price action trading is done."
To me, technical price action trading is all about finding places where enough traders may perceive value that when they step into the market they'll drive price to a level that causes those on the other side to offset their positions, thereby driving price even further and attracting more traders to join because they fear they'll miss out on a move that seems to be gathering momentum. It's really about the psychology of the market participants.
Sometimes a "value zone" for one side is a tradeable distance (as defined by your R:R criteria) from a value zone for the other side. In this case I look to trade if signaled.
Sometimes the value zones are very close together (congestion, lack of "airspace"). In this case I wait for clarity because it will likely be choppy for a while.
What I'm calling "value zones" are really nothing more than supply/demand zones, or support and resistance.
Traders who have a need to pick entries as close to price turns as possible will end up with more losses because they'll be buying support and selling resistance without letting the behavior of the market indicate whether these S/R levels are considered value entries by enough participants to get a ball rolling, so to speak. (Some traders go even further by trying to pick tops and bottoms in a trend based on where they"feel" price has gone too far and should turn. This can be downright dangerous.)
Their losses will be smaller than someone like me who enters at a worse price on some sort of confirmation of interest, but they'll have more losses than me, often so many more that they eventually throw up their hands and conclude that consistently profitable trading is impossible, a pipe dream promoted by false gurus. They come to believe that only brokers and insiders have an edge.
In fact, they never learned how to identify high probability support and resistance zones in the first place and even if they did, they never learned how to recognize the signs that these zones are indeed likely to hold more often than not.
I'm forever thankful to Bighog for mentioning a book call Reading Price Charts Bar By Bar. He told me it reminded him a little of what I was trying to do. That recommendation got me started on the path to trading price action and eventually resulted in me discovering an edge that is dependent on nothing more than a trading instrument in which price goes up and down by at least N ticks each day (basically, anything).
Because I was so damaged it became apparent that I had to come up with a strict plan, very strict rules, and develop the discipline to follow it. Others like dbPhoenix never went through that, so they weren't working from a "all dogs are dangerous" mindset (read Mark Douglas) and could trade more flexibly, though still within a positive expectancy framework.
My edge is based on trading in a way that's very similar to Bighog and dbPhoenix. From what I've seen it's just classic price action concepts; the two of them aren't much different in how they read the market.
I received a PM from someone who told me they'd been trading a long time and could not find a way to make it work. He said he doubted anyone could trade for a living. He seemed to be where I was back in 2009, the difference being, I'd watched a couple people be consistently profitable for at least a year, so I still had a seed of hope that it could be done. The guy who contacted me saw only randomness in the market, and was concerned that common price action setups seemed to be a 50/50 proposition and that they looked different every time.
I'll post my response to him here (with some parts bold for emphasis) because I think it will help clarify price action trading for those who really have no idea what it means:
"I believe the reason you've been a failed trader...is because a) you take your setups based on "feel" instead of rules based on odds in your favor and, b) you haven't learned how to recognize certain patterns in certain context that place the odds in your favor.
Let's say a trend line, flag, or triangle breaks with conviction (more than N ticks, with N being dependent on the instrument you're trading). The trend line, flag or triangle is the price action context, and the break with conviction is the signal. Now you watch for the setup and as soon as it appears, you place your order in the direction of the breakout. If the setup doesn't appear, you wait for further clarity.
I'll give you an example using yesterday's price action as viewed on the 5-min and 1-min charts of the oil futures I trade (currently the CLG4 contract): (This is Friday 1/10 action, BTW)
Connect the overnight swing highs and swing lows on the 5-min chart prior to the NYMEX pit open (9:00am eastern time). This forms an expanding triangle formation with higher lows and higher highs (price action context).
Just before the pit open, price breaks through the rising upper trend line with conviction (long signal). The high probability pattern (setup) to watch for is a pull back to the upper trend line and a price turn back upward off that level.
I watch the 1-min chart to catch an early turn off that level thereby keeping my risk small. During the 8:55am ET bar price touches that line and I place a buy stop above the previous 1-min bar's high. When the 8:55 bar closes, I trail my buy stop just above that bar's high. You see, I'm waiting for buyers to step in at this common area of technical support and sweep me into a long position in the direction of the previous breakout.
Since this never occurs, I never end up in a long position, thereby avoiding the loss I would've taken if I assumed the trend line would hold as support.
Instead price breaks the trend line to the downside with conviction. What does this mean now? It means that price is likely to test a lower previous support level because now there's no value for buyers until that level is reached. There's a lower trend line across the 7:55 and 8:30 swing lows likely to attract buyers and it's around 92.70 at the time of the downside break.
When price gets there, buyers make a very weak attempt to stop the selling just as the pit opening action begins, but they fail and this lower trend line breaks with conviction during the 9:03 bar. I'm never swept into a long position and I avoid any loss that I would've incurred if I assumed price would find support at that LTL.
Now that the LTL has broken, I looking for a short entry. I watch for price to pull back to the lower trend line because it should become resistance in the new possible downtrend. This occurs during the 9:10 bar. I now trail a sell stop below the low of each 1-min bar and I'm swept into a short position at 92.69.
There's a deeper lower trend line around the 92.50 price level from the swing lows further back in the overnight session and this is my profit target.
This is how one high probability method of profitable price action trading is done."
To me, technical price action trading is all about finding places where enough traders may perceive value that when they step into the market they'll drive price to a level that causes those on the other side to offset their positions, thereby driving price even further and attracting more traders to join because they fear they'll miss out on a move that seems to be gathering momentum. It's really about the psychology of the market participants.
Sometimes a "value zone" for one side is a tradeable distance (as defined by your R:R criteria) from a value zone for the other side. In this case I look to trade if signaled.
Sometimes the value zones are very close together (congestion, lack of "airspace"). In this case I wait for clarity because it will likely be choppy for a while.
What I'm calling "value zones" are really nothing more than supply/demand zones, or support and resistance.
Traders who have a need to pick entries as close to price turns as possible will end up with more losses because they'll be buying support and selling resistance without letting the behavior of the market indicate whether these S/R levels are considered value entries by enough participants to get a ball rolling, so to speak. (Some traders go even further by trying to pick tops and bottoms in a trend based on where they"feel" price has gone too far and should turn. This can be downright dangerous.)
Their losses will be smaller than someone like me who enters at a worse price on some sort of confirmation of interest, but they'll have more losses than me, often so many more that they eventually throw up their hands and conclude that consistently profitable trading is impossible, a pipe dream promoted by false gurus. They come to believe that only brokers and insiders have an edge.
In fact, they never learned how to identify high probability support and resistance zones in the first place and even if they did, they never learned how to recognize the signs that these zones are indeed likely to hold more often than not.
Perhaps, but so far I'm going on 15 years of the same core system working, only adjusting profit tgts for volatility. Maybe one day it will but for now I'm ok.
Seen perhaps, but maybe not structured in such a way to consistently take advantage of. I don't know, I can't speak for everyone else.
In other words, your system worked until VIX90 and full blown market volatility in 2008 into 2009 and your system didn't work anymore. and now you trade a new methodology and it's working..
sounds like you're still in the game because of a willingness to change.
every methodology works at some point and will work again in the future. every methodology fails at some point and will fail again in the future. the markets simply churn it's participants and rotate the finite permutation of strategies.
This thread has attracted a great portion of the posters worth reading in this site, so "most" of the suggestions are legit and valuable.