Is price movement really random and unpredictable?

[birdman]

Folks, in order to become filth rich, you don't need to predict what will happen tomorrow, let alone next week, next month or even next year. You just need to know what the next bar or candle is. Do that time and time again and you're set to become a billionaire in no time.

Which begs the question, what is the best chart timeframe for day traders? 1 minute, 2 minute, 5 minute or something else? This month i am testing 5 second bars with Heikin Ashi Candles on one screen and 1 minute on another. Too soon to draw conclusions but interesting.

 

[volpri]

First of all, I never said that noise is not tradeable. For example, if there's a trend going from A to B, I would consider every counter deviation/spike (noise) on that path a possible trading opportunity. Simplistically.

Anyway, if the market was as predictable as you suggest it is, I was thinking you'd net more than 5.5 points on a 34.25 point day.

Of course, any green day is a good day and if you can average 5 points per day on ES you're golden in my books, but there's a gap between your claims about how predictable markets are and your performance, IMO.



Thursday's Close was 4814.75. Friday closed at 4816.75. So, effectively, a green close.

Yes, I did.

Anyway, I think we'll end it on good terms here. I promised myself to not engage in time and energy consuming discussions this year and here I am doing it again.

Have a good weekend all!

Yes that is correct. Much more than 5.5 could have extracted out of a 34.25 day. I only made 3 trades. That was all I had time for yesterday. I barely had time for those trades.

Of course, there is a gap between the markets and my performance yesterday because I did not trade the entire session. Of the entire session my trades took place in a 55 min section of that entire session, and I did not even trade all potential trades within that entire 55 minutes as I was too busy with other things to even watch the market on those trades. Well, I did on one of them. The other two I took bracketed orders and left then came back later. It had executed. The other one same thing bracketed it and left…came back and it had executed.

In actual trade time we are talking about a 15 min period to make 5.5 points. Entry and exit on first trade same 5 minute bar. Entry and exit 2nd trade over two 5 min bars. Entry and exit on third trade over one 5 min bar.

Yes of course a green close does indeed depend on your starting point. I consider it a green close for the sessions action if price closes above it’s open and high of the session. Which it did not.

But anyway, my point is there is NO Noise in the markets, only trade-able price action. And the previous close by bars and their action are very important to short-term prediction of where price will likely go next. And it is not just where price went i.e. “what” price did but “how” price did whatever it did in terms of predicting. We can have a big bull bar but what does that price action say in terms of the adjacent bar(s)? Was there a breakout of the previous bar? Was there a BO out several bars? Was that bull bar an Inside bar? Outside bar? Where is that bull bar in the larger context?

All of those things are important in short-term direction prediction and prediction of the probability that the trade will be a profitable trade.

With scalping the trader's equation will often be upside down in terms of risks vs reward so momentum “how” the price move was made becomes an important factor in assigning probability to the equation.

Reward x Probability of profit > Risk x Probability of Loss

Reward = your expected profit (number of ticks from entry price to profit target)
Risk = your expected loss if your protective stop is hit (number of ticks to your stop)

 

[volpri]

Look at the first trade on a 1min chart. And assign probability. The probability was probably around 75% that price would move at least 2 points in my favor before it would hit my SL at the bottom of bar 11:51. We got two bull bars before my entry bar. Both closing near their highs and breaking above the last 4 or 5 bars. That is momentum. My entry point (green line) was at a breakout above the last 29 one-minute bars. Yes, more momentum!! So, plug this in the trader's equation and see if we can get a positive trader's equation, which makes for a high probability scalp.

Probability of success 2 points (my expected profit) X 75% (assigned probability) = 150

Probability of trade failing 3 points (my risk) X 35% (assigned probability = 110
150>110, so a positive trader's equation.

So, more likely we would see 2 point move in my favor before we would see a 3 point move south against me.

All this in NOISE! Which really is something that doesn't exist. But often traders will use noise as an excuse for an unsuccessful trade. "I shouldn't have been trading in noise goes the narrative."

Again, there is only movement (no noise) and if that movement renders a positive trader's equation, then it is a high probability trade.

It doesn't always do so and if one takes the trade anyway, they best take it with small position size in case they need to average down or "scale in" (to make averaging down sounds sweet!) or to just exit the trade with a small loss.

 

[volpri]

Using the trader’s equation sounds hard to do or complicated to achieve in such a short time frame. Well, it can at first but as one practices they can get to the point that they can trade a 1 min chart and quickly do the equation in their head. And at the point doing it on a 5 minute chart seems like a long TF period to do it on and it becomes very easy to do.

 

[volpri]

If one deeply thinks about it: every 5 minute chart gives a 50% chance of a successful trade. That is one can go long or short on any 5 minute chart and have a 50% chance of making a profitable trade. However, the traders equation puts more probability in a trader’s favor. So higher probability trades. There are 81 five minute bars in the session. All are not high probability but plenty are.

Learning to read price action and learning the skill of assigning probability of reaching a target or reaching a stop-loss then plugging that into a traders equation to come to a positive traders equation, PLUS learning how to average down in short-term moves, are essential skills for scalping price action. Of course the latter is anathema to most traders minds. As that is what they have been taught. Granted, averaging down without the first two skills can be anathema!

 

[volpri]

Finally, it is much easier to predict 5 minutes from now than 3 hours from now or 10 days from now. Plus short-term prediction renders what I call FOT (frequency of trades). Many many more potentially profitable opportunities in short-term trading than in long term.

Every wonder why successful HFTs want faster connections to the exchanges and most likely they don’t place much interest on market action a month from now. It is out of their envelop for trading. Even 3 hours out isn’t that interesting to them. Some are likely not interested in 5 minutes out!

The way I trade 1 to 8 points I call “manual HFT” trading LOL. None of us retail traders can compete with these big HFT firms. So, if we scalp we have to learn to trade outside their envelop or ride with them when we see one of their algos execute rapidly.

Have a good weekend.

 

[volpri]

Which begs the question, what is the best chart timeframe for day traders? 1 minute, 2 minute, 5 minute or something else? This month i am testing 5 second bars with Heikin Ashi Candles on one screen and 1 minute on another. Too soon to draw conclusions but interesting.

I use 5 min and 1m to see inside a 5m if I need to and an occasional glance at 15 min to see outside the last 5 min bar looking back. In other words where is this last 5 min bar in terms of the last 15 minutes? One min bars are generally the smallest bar I will consider. I have to stay out of the trading envelop of those tiny scalping HFTs that do thousands of trades in a session. 1 point is my smallest scalp I attempt to capture. Of course i don’t always get it but it is the smallest scalp I am willing to attempt a trade on. I am not interested in 1 tick or two ticks profit. For obvious reasons.

I have also said several times scalper have to maintain a high win rate and a mathematically higher average win vs average loss but even to the contrary of that sometimes the win rate can pull one out the hole on negative average win vs average loss.

For instance , I take 20 trades and have an 80% win rate making an average of 2 pts on 16 winning trades gives me 32 pts. Five losses and average 4 points per loss gives me losing 20 points. Average win is 2 points. Average loss is 4 points yet I am still ahead by 12 points after 20 trades, High win rate saved my skin.

 

[savoir]

Trader's equation = the dumbest made-up concept that has taken hold in the retail trading world.

 

[schizo]

Which begs the question, what is the best chart timeframe for day traders? 1 minute, 2 minute, 5 minute or something else? This month i am testing 5 second bars with Heikin Ashi Candles on one screen and 1 minute on another. Too soon to draw conclusions but interesting.

All timeframes are interconnected. While you may only trade using the 1 minute chart, the trend you see developing might have actually been instigated by those who follow the 30 minute chart. My earlier tongue-in-cheek premise that in order to become a billionaire you only need to know the next candle is predicated on this notion. It doesn't really matter what timeframe you're monitoring, be it 1 minute or 1 day, since the longer timeframe is always built on smaller timeframes. As simple as this sounds, this took me a long time to figure out.

 

[tomas262]

Have you ever noticed when you pee into the wind direction it gets little further? That "little" makes all the difference