Iterative Refinement

[Padawan]

Quote from FerdinandAlx:



But, what must come next if we're wrong? What information will determine that you were wrong and make you reverse your position from long back to short?

Ok, I think what must come next if we're wrong is the opposite of what must come next to hold long as we ride out a forming 1-2-3 up channel. To hold long we need to see price going back to RTL on decreasing non-dom (black) volume. Then we need to see price break the RTL on increasing black volume.

So...if the ES or YM gives us increasing red volume as price heads back toward the left trend line, then we're on the wrong side. This could present itself in the form of a flaw and then increasing red or just a regular old resumption of red dominant volume. As I understand Spydertrader, the instrument you're using (ES or YM) to show you the increasing red will determine whether you will either a) get shaken out more often (YM) or b) give up a few additional ticks (ES).

This can hard for me sometimes because what if you see change or increasing red happen intrabar? I think because you used an intrabar tool to help you get long (DOM), you have to monitor the remainder of the bar to make sure there were no additional intrabar change signals. There's still time left and the close could end up being near the low of that bar as a result of the DOM/STRSQU/T&S/Tick giving you an intrabar signal to get back short. If there's no intrabar signal then we go to bar to bar monitoring.

[There's also APA/If1/IF2, but that's a last resort kind of thing I think.]

 

[ivob]

Hello,

Too bad I couldn't attent the Traders' Expo.

In my opinion anything else but decreasing black volume would mean that you are wrong except that there can be a flaw: So only if a (small) red bar is forming on extremely low volume then I would consider to stay long and the next bar would have to show increasing black quickly. Else I would reverse or exit.

regards,
Ivo

Quote from FerdinandAlx:

Hypothetical situation:

The market is in a downtrend with multuple volatility extensions. The previous bar came a after a retrace of the down channel and is showing lower red volume.

We are 2 minutes into the current bar. The bar shows increasing pro rata volume and failed to traverse the channel after bouncing off a wall in the DOM. The dynamic close is currently moving up and has taken out the previous' bar close. We decide that this is an FTT and reverse our position.

If we're right, what comes next is decreasing volume with price moving up towards the right trendline.

But, what must come next if we're wrong? What information will determine that you were wrong and make you reverse your position from long back to short?

 

[Tums]

Quote from FerdinandAlx:

Hypothetical situation:

The market is in a downtrend with multuple volatility extensions....
But, what must come next if we're wrong? What information will determine that you were wrong and make you reverse your position from long back to short?

unless you are trading at the advanced level, anything more than a Pt3 Long is asking for trouble.

 

[PointOne]

Quote from FerdinandAlx:

I illustrated the situation:

What is the basis for reversing there? It looks late, at the wrong end of the bar and smacks of reaction or "chasing". You reverse where you would also bank maximum profits - at the wall, anywhere else is sub-optimal.

With such a late reversal, you will likely go into small drawdown for the next few bars. This may cloud your judgment and affect your MADA. IF2 is your absolute backstop (but note that you are not even across the original short IF2 line yet).

As others have said, increasing pro-rata volume before you get your B2B / BO is an early warning sign that you are on the wrong side.

If I'd reversed there and realised I had reacted rather than anticipated, I would wash, sideline and regroup. There will be a point 3.

 

[tradingbug]

Quote from TIKITRADER:


Just to start off, Spy shows up at the expo with a laptop ready to do a thorough review. Who goes out of their way for people and never asks for anything more in return than to do the work and understand completely, only to benefit ourselves.

It was an excellent trading demostration. I took some time off from sct trading the ES but saw through the demo that it was possible. What was reassuiring was that even though spy stated he will be retiring from the journal soon, that everything needed to learn this material was already written down in the previous journals. I look forward to giving it another shot.

 

[ericta]

Quote from PointOne:



If I'd reversed there and realised I had reacted rather than anticipated, I would wash, sideline and regroup. There will be a point 3.

so true.

 

[Avi 8]

Quote from FerdinandAlx:

...what must come next if we're wrong? ...

Excellent question, Ferdinand!

At any given time there are four possibilities. What are they?

1) You gave one answer in this post
2) cnms2 has another
3) ?
4) ?

Remember, this is a 'binary' process. If it is not yes, then it is no, etc. There are no ambiguities, no probabilities, no sometimes.

Great discussion, and is exactly how one 'speeds' up the process of going through all the possible sequences when trading so as to always be on the right side of the market.

 

[Padawan]

Quote from Avi 8:

Excellent question, Ferdinand!

At any given time there are four possibilities. What are they?

1) You gave one answer in this post
2) cnms2 has another
3) ?
4) ?

Remember, this is a 'binary' process. If it is not yes, then it is no, etc. There are no ambiguities, no probabilities, no sometimes.

Great discussion, and is exactly how one 'speeds' up the process of going through all the possible sequences when trading so as to always be on the right side of the market.

3) FBO?

 

[Haroki]

Quote from Tums:

unless you are trading at the advanced level, anything more than a Pt3 Long is asking for trouble.

This is excellent advice.

4-6 pts/day makes you a VERY sucessful ES trader once you size up a bit.

No need to push things. Take more trades as experience grows....

 

[FerdinandAlx]

Thanks to all of you for your thoughtful answers! To spice the discussion I would like to add another possible outcome.

In this outcome, the bar we thought was an FTT turned out to be a HVS. The next bar signals change, a continuation for our down channel. The tricky part here is that due to the lower volume this bar could easily be mistaken for a flaw that signals continuation, like a dip. Could this be recognized early on or would you be forced to wait until the IF2 triggered?