IN THIS THREAD: IronFist learns (the elusive) PRICE ACTION

Try taking this approach to exit and enter trades.
Look at charts 1,5,15 min. Go far back as much as you can with this (start with a week).
Look for the pivots in each chart and write that down. Not just any pivot, but at what price did it hit and turn around a few times that day or week whatever time frame your looking at.
Sometimes there Fib numbers. Other times there actual pivot points.
I trade the es with the help of snp500trader. If you want his key weekly levels go to powercharting.com click on traders resources-> Key weekly levels.
Those numbers get respect.
You want the holy grail, Price Has Memory.
Today I shorted the 727 level, and I also went long at 714. These were just a few of the trades I made today.
(you can also go to mypivots.com-> daily notes and click on whatever your trading).
I hope this information helps. Chart reading is another form of PA. Watching charts, doesn't matter what time frame as long as its unfolding in front of you real time.
 
IMO there isnt really any such thing as "trend", its a relative term that doesnt mean much. It's like saying "Lil Wayne is a good rapper"...depends who you ask.

Same with trendsL day traders, swing traders, position traders, and everyone in between will point to their 5min chart, 1hr, 4hr, daily, weekly, monthly, tick chart, and show you where price is going.

It doesn't really mean shit, because unless you trade the same style as them, those time frames are not important, and neither are their trends. a double top on a 5min chart doesnt mean shit to a non day trader, and so on and so on.

Even if you and I looked at the same daily chart, for say

http://stockcharts.com/h-sc/ui?s=RATE&p=D&b=5&g=0&id=p71597392114

and i ask you, where is the trend, and you say "up" for example, well I'm going to disagre with you, but guess what?..WERE BOTH RIGHT. Thats the beauty of the markets, are that people see the market in so many different ways. A trend no matter how big or small is just a retracement of a nother larger trend take my chart for example. Some would say RATE is is now in a bull market, as its been going strong the last 3 days, others say its still in a down trend.

Id advise that you look over the charts i posted on this thread.

in the picture that i posted i show 3 different trends. Trend B is just a retracement of its previous trend (A), and trend C is just a retracement of previous trend B

Forget trying to time tops and bottoms, trade the pullbacks like we were doing when you and I were trading YM

in the 2nd picture here is my analysis of the trade signals givin, 1 loser and two great winners.

I got stopped on the first trade because obviously i was short against the uptrend, but im not worried, I know that its over-bought and I'm shorting based off a longer term down trend.

Once you can wrap your mind around this concept, you'll do fine. :p
 

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Quote from cashmoney69:

I think trading YM isnt the best thing for you. You cant properly control your risk, due to too little capital. Open a stock account.

cm
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No kidding, that's why I've been studying this for so long.

I can't trade how I want to with stocks due to wash sales and tax annoyances. It's futures or *gasp* forex. Actually, forex, with it's super tiny lot sizes, would be perfect for learning if it wasn't so corrupt and unregulated. And I've never met anyone who understands what to do for Forex taxes, either.

I get annoyed at tax time listing my 10-20 trades for the year for stocks. There's no way I'm gonna list 5+ per day.

btw your first negative divergence failed but I noticed you didn't include that one :D
 
Quote from IronFist:



btw your first negative divergence failed but I noticed you didn't include that one :D
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I dont see another one...

They dont always work, nothing ever does.

cm
 
keep at it IF, the longer you stare at a chart during active trading hours the sooner you will be where you want to be (preferably the same instrument). I heard it goes even faster if youre having fun. :D
 
Quote from cashmoney69:

I dont see another one...

They dont always work, nothing ever does.

cm
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First one here as it would have appeared in real time.

Cheers if you can use MACD and stochs profitably :D
 

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Quote from IronFist:
I am having trouble "trend following."

In order to follow a trend I need a definition of a trend. The most commonly given definition I've seen that is based on price action is a sequence of HH and HLs or LL and LHs. This will subsequently be referred to as "definition 1."

Definition 1 eliminates trading from the following situations:

- When LL follows an HH (by definition 1 you are no longer in an uptrend and are essentially in "limbo" until a LH forms immediately following the LL)

- When HH follows an LL (by definition 1 you are no longer in a down trend and are essentially in "limbo" until a HL forms)
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Trend ends ONLY when there are TWO LL and LH. You say trend is over when a LL forms after a HH. imo, you would then need a LH and another LL minimum to call a trend change. Ideally another LH as well.

Here is my anchor chart from a few days ago. I marked these going into the 3/17 session. Notice how we were in an uptrend then did a LH and a LL? Well, trend is still up so I took nothing but longs all day that day on support and made money. There were people screaming downtrend just because of on LH and LL and losing their shirts.

http://picsordie.com/images/r8x775dbaofghcq5k492.jpg




Definition 1 leads to the following questions:

- how do you know when to enter the trend?

- how do you know when to exit the trend?

I have been given a few answers for these, and I have played around a bit with my own formulas, but I have not been able to quantify any results into anything usable. Sometimes it ("it" being "whatever method I'm trying") works, sometimes it doesn't. Just to name a few, some of the methods I've tried have been:

(assume we're in an uptrend as defined by definition 1)

- Entering after a pullback when the current candle breaks the high of the previous candle (this happens all the time and then price continues downward)

- Enter after a pullback when the price closes above the high of the previous candle (this happens all the time and then price continues downward)

- Enter after a pullback when the price closes above a given, relatively fast MA (this happens all the time and if the MA isn't in sync with the current price action, which is impossible to set ahead of time, even using adaptive MAs and other crazy shit most people have never even heard of, it won't work)

- Enter after a pullback when the price closes above the previous HH (hey this one sounded dumb to me, too, but I had to test it because maybe it would work; well it only works in huge uptrends: ie. not reliable because you never know if it's going to be a huge uptrend ahead of time or not)

- Enter after a pullback on decreasing volume (unreliable as volume is a random distribution histogram)

- Enter after a pullback on increasing volume (unreliable as volume is a random distribution histogram)

Alright so that right there are 6 of the methods I've tried that are unreliable and therefore scrapped. To be honest I'm really having a hard time coming up with things I haven't tried.
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Entering when a candle goes above previous candle's high is too fast and I can see you would get chopped out all day long. Try entering with the 3 bar pattern instead. If you still find yourself getting chopped to hell then perhaps you are using too fast of a timeframe on your charts. Here's a quick description of the 3br.

http://img147.imageshack.us/my.php?image=3brentrygl5.jpg

Not everybody waits for price to retrace after the magic tick ... you can always enter on magic tick of 4th bar as well. up to you.



So that deals with entries, now lets talk about exits:

Obvoiusly without exits your system is worthless. Using the above methods, I was unable to enter an not suffer moderate to severe drawdowns.

Let me stop right here and talk about that for a sec. Everyone talks about "use tight stops, limit your losses."

I'm not sure what instrument they're trading, but you cannot trade YM, NQ, or ES with "tight stops" unless you can pick the bottom. Enter long at 800, "tight stop" of 1.5 points, well the ES moves more than 1.5 points in noise constantly, so chances are it's gonna hit 798.5 before it goes in your direction. And even if it doesn't, it will probably go up to 802, then drop back down to 797, then go up to 810 or something. So people on ET will say "well duh just wait until that final shakeout down to 797 and enter there and get on board for the ride lol i'm a trading guru!!!" Well that final dip down to 797 breaks the HH HL structure as defined by definition 1 and therefore we're no longer in an uptrend and therefore we can no longer be taking long positions.
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Tight stops are very possible. If you only place your entries at important Support/Resistance levels it is amazing how well it can work. Watching for major volume surges on a 5 sec chart can really help as well. Entering on 3br's allows for fairly tight stops too.



Side note here: I'm thinking the key to trading lies in not being bound by HH/HL or LL/LH constraints of trend definition.

Back to exits.

Target profits first:

With a trend following system, I cannot understand how fixed target profits can be used. Maybe my understanding is flawed, but based on months of backtesting AND forward testing in demo accounts, the only way I'm able to get trend following to be profitable (some of the time) is by letting every trade ride as long as it will go. Backtesting with fixed target profit stops of 3, 5, 8, 10, 12, and 15 (i think) was UNPROFITABLE OVER TIME. You get a higher win ratio, but overall your wins are less. This leads me to believe that with trend following systems you HAVE to shoot for home runs every time.

If fixed target profits on trend following systems were feasible, I suspect it would require computing power that I don't posses to determine the optimal locations. But even hypothetically I can't understand that concept because you don't know how far at rend is going to go and therefore putting an artificial limit on it is dumb. Plus remember you need home runs to eliminate your million small losses from using your "tight stops."
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If you are doing a trend following system and entered in an uptrend, take off partial at the next HH, then add again at HL, take some off at next HH, etc. However, the real deal is entering / exiting at pivot S/R only. Price only changes direction at pivots(almost always) anything that happens in between those pivots is just noise.



Now stop losses:

Similarly, in backtesting just for fun I wouldn't exit a position until the market told me to, which means dealing with INSANE drawdowns at times, which frankly I don't have the balls or the account to handle. Remember that "tight stops" will get stopped out unless you pick tops or bottoms, so holding positions through draw downs is necessary to avoid having a million small losses.

In other words, I was getting entry signals, and THEN hitting HUGE drawdown, which means that my entry signals were bad. But by the time price had drawn down to the bottom of the pull back, HH/HL structure had been violated again supporting my notion that HH/HL structure is perhaps a crutch to successful trading.

Alright enough trend following action for a while. Let's talk about COUNTERTREND.

Countertrend is a whole separate beast. Unlike with trendfollowing where you're riding price into the unknown, counter trend trading EASILY lends itself to predetermined target profits. In fact it's a bit of the opposite because the only thing that isn't immediately known with CT trading is where to put your stop loss.

I will add that while I have been insanely profitable (in demo accounts) with CT trading, it quickly becomes martingaling (or some variant of martingaling) if you're not careful, and that's probably not good in the long run.
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I wouldn't worry about countertrend trading. Pull up 2 charts:

10,000 volume NQ
1,000 volume NQ

Only trade in the direction of the trend on the 10,000 volume chart. If the trend is up, and the intraday trend is down on the 1,000 volume, it is perfectly OK to enter counter trend on the 1000k, which is actually WITH the overall larger trend. Key here is that you want to enter at Support levels.

This will return some amazing plays and you will be able to call bottoms on an intraday chart knowing that the actual larger trend is up.

IMO if the anchor chart is unclear of the trend, just don't trade until you are more experienced. No sense in taking trades that are low probability.


But I'm not sure how I feel mentally about this.

Psychologically, I would like to be a trend trader. I would like to have this thought: "I am entering a trade now, I don't know how far it will go, but I know it will probably be profitable". That would be low stress, low risk, high gain. In fact, that would be traders paradise for me. But 3 months after creating this thread, which was made many months AFTER following jjrvat's "Day Trading 2.0 for small traders" thread and mechanically backtesting the hell out of everything in that thread (a brilliant thread, btw, except for all the spam in it) I still cannot apply trend following in real time. And I have no idea how jjrvat manages to scalp using that method because like I said before, backtesting with 3, 5, 8, 10, and 12 tick target profits yielded a huge negative equity curve. I sort of got that method to be profitable but it required holding for home runs. So jjrvat must have some brilliant stop loss method in place or be picking bottoms like a champ.
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