Given the length of Keeping It Simple, it seems reasonable to start fresh so that people don't have to work their way through pages and pages of posts, many of which are repetitive.
Therefore, I'll start by posting the rules. These have changed slightly since I posted them last in December and may change again, slightly, depending on how the markets change over the coming months. But the underlying structure will remain the same.
Donât try to second-guess the "system". Maybe price seems a little tentative at what you've pegged as the breakout point. And then bam! you're off to the races only you didn't take the trade, and there you sit. You're better off, then, taking every single legitimate trade in order to find out just what the system does when you've made it as mechanical as you can. If it turns in a performance which is acceptable to you, then you can trust it, and you don't mind so much taking even two consecutive losses because you know that disaster is not looming and your self-confidence is in less danger of being damaged.
The only way for anyone to learn this is to sit there and watch the charts in real time, day after day, and see for themselves how price behaves, how the bars form, how long it takes to get from one place to another, and make copious notes of what they're seeing so that they have something to use at the end of the day and so that they have a record they can refer to days or weeks later when a light goes on and they think that they have stumbled upon a principle.
What may help is for me to separate the rules of the system from the discretionary elements so that you have a clearer course and a better focus (with my hat off to SnoSur4).
Use a 1m chart for the opening.
For the NQ, enter a trade using a stop-limit 2 points outside the opening range (the opening range generally takes 15-20m to form; if there's a report due out at 1000 and price has not broken out of the range by 0950, you may want to wait for the report and use the reaction to it as the opening range). When filled, place an initial loss-limit stop (I use 5pts). If price remains within the opening range, thereâs no trade.
As soon as a trend develops, switch to a 3m chart to draw a trendline. The 1m won't be used further.
When this trendline is broken, move the stop to breakeven. An option is to use a 5/6pt trailing stop until breakeven is reached.
If and when the limit of the 10d average range (the average day's range low to high for 10 days) is reached, tighten and trail the stop using the ends of the bars, or, if you prefer, move the stop to the last reaction high/low, or simply exit with a market or limit order when the target is reached.
If stopped out, do not re-enter in the original direction unless and until the new high or low is exceeded by 2 points.
Take every trade.
Do not use any indicators or moving averages of any kind. But keep an eye on the ES. If, for example, the NQ is close to triggering an entry but the ES isn't anywhere near an entry point, the entry will nearly always fail.
And that's just about it. Everything else is discretionary.
For example, you may choose to ignore gaps and reversals, and that's perfectly okay; there's nothing wrong with making a nice profit and quitting for the day.
You may choose to use an intial 5pt loss-limit stop, as I do, or you may choose 4pts. Or 8pts. Or 10pts (I suggest you use at least 4).
You may decide to use a 5m chart. Or an 8m. Or 12. Or 20. Or 34.
And if this seems as though you have a lot of choices to make, you'll find that every system that touts itself as being "simple" requires a lot more decisions that youâd expect.
REVERSALS
The reversal patterns I look for are nothing complicated: Ms, Ws, lateral (not trendline) support/resistance, 2Bs. I focus on only a few high-probability/low-risk setups and let everybody else fight over the others.
GAPS
If there's a gap of at least 1% but less than 3%, fading the gap is generally a winning strategy, at least often enough to make the occasional stop loss acceptable (if the gap is less than 1%, there's really no place to go). It pays, however, to be alert to the feint, i.e., the price moves toward filling the gap but reverses abruptly, stopping you out. In these instances, the probability of a breakout to the opposite side of the range is increased.
Brandon Frederickson did a study on these and found that 71% of the average gaps (1.2%) filled on the same day, but that as they grew larger, the percentage that filled fell dramatically (only 36% of gaps of 2% filled the same day, only 23% of 3% gaps, and only 5% of gaps of 4% or more). Therefore, the probabilities for fades lie with smaller gaps.
In all cases, know in advance whether or not there will be an 0945 or 1000 report announcement which may affect your trade.
Therefore, I'll start by posting the rules. These have changed slightly since I posted them last in December and may change again, slightly, depending on how the markets change over the coming months. But the underlying structure will remain the same.
Donât try to second-guess the "system". Maybe price seems a little tentative at what you've pegged as the breakout point. And then bam! you're off to the races only you didn't take the trade, and there you sit. You're better off, then, taking every single legitimate trade in order to find out just what the system does when you've made it as mechanical as you can. If it turns in a performance which is acceptable to you, then you can trust it, and you don't mind so much taking even two consecutive losses because you know that disaster is not looming and your self-confidence is in less danger of being damaged.
The only way for anyone to learn this is to sit there and watch the charts in real time, day after day, and see for themselves how price behaves, how the bars form, how long it takes to get from one place to another, and make copious notes of what they're seeing so that they have something to use at the end of the day and so that they have a record they can refer to days or weeks later when a light goes on and they think that they have stumbled upon a principle.
What may help is for me to separate the rules of the system from the discretionary elements so that you have a clearer course and a better focus (with my hat off to SnoSur4).
Use a 1m chart for the opening.
For the NQ, enter a trade using a stop-limit 2 points outside the opening range (the opening range generally takes 15-20m to form; if there's a report due out at 1000 and price has not broken out of the range by 0950, you may want to wait for the report and use the reaction to it as the opening range). When filled, place an initial loss-limit stop (I use 5pts). If price remains within the opening range, thereâs no trade.
As soon as a trend develops, switch to a 3m chart to draw a trendline. The 1m won't be used further.
When this trendline is broken, move the stop to breakeven. An option is to use a 5/6pt trailing stop until breakeven is reached.
If and when the limit of the 10d average range (the average day's range low to high for 10 days) is reached, tighten and trail the stop using the ends of the bars, or, if you prefer, move the stop to the last reaction high/low, or simply exit with a market or limit order when the target is reached.
If stopped out, do not re-enter in the original direction unless and until the new high or low is exceeded by 2 points.
Take every trade.
Do not use any indicators or moving averages of any kind. But keep an eye on the ES. If, for example, the NQ is close to triggering an entry but the ES isn't anywhere near an entry point, the entry will nearly always fail.
And that's just about it. Everything else is discretionary.
For example, you may choose to ignore gaps and reversals, and that's perfectly okay; there's nothing wrong with making a nice profit and quitting for the day.
You may choose to use an intial 5pt loss-limit stop, as I do, or you may choose 4pts. Or 8pts. Or 10pts (I suggest you use at least 4).
You may decide to use a 5m chart. Or an 8m. Or 12. Or 20. Or 34.
And if this seems as though you have a lot of choices to make, you'll find that every system that touts itself as being "simple" requires a lot more decisions that youâd expect.
REVERSALS
The reversal patterns I look for are nothing complicated: Ms, Ws, lateral (not trendline) support/resistance, 2Bs. I focus on only a few high-probability/low-risk setups and let everybody else fight over the others.
GAPS
If there's a gap of at least 1% but less than 3%, fading the gap is generally a winning strategy, at least often enough to make the occasional stop loss acceptable (if the gap is less than 1%, there's really no place to go). It pays, however, to be alert to the feint, i.e., the price moves toward filling the gap but reverses abruptly, stopping you out. In these instances, the probability of a breakout to the opposite side of the range is increased.
Brandon Frederickson did a study on these and found that 71% of the average gaps (1.2%) filled on the same day, but that as they grew larger, the percentage that filled fell dramatically (only 36% of gaps of 2% filled the same day, only 23% of 3% gaps, and only 5% of gaps of 4% or more). Therefore, the probabilities for fades lie with smaller gaps.
In all cases, know in advance whether or not there will be an 0945 or 1000 report announcement which may affect your trade.
