Keeping It Simple

[dbphoenix]

Quote from mojo59:


Hi Db,
I put a stop above the 1021.5 bar and exited at 1022 since we were close to the atr target and I was probably just antsy to take profits on a day like today and holding onto the trade for 3 hrs. I am working on my patience and today was a definite test. Thanks.
Jerry

I hear ya, and I understand. You're doing great, though you may also want to think about trading in the direction of the gap. Mike doesn't, and I'm undecided about it, but it does seem that trading in the direction of the gap can be a problem if you can't get to breakeven fairly quickly. If you had played the reversal only, the profit would have been +15.5 to +18.

--Db

 

[mojo59]

Quote from dbphoenix:



I hear ya, and I understand. You're doing great, though you may also want to think about trading in the direction of the gap. Mike doesn't, and I'm undecided about it, but it does seem that trading in the direction of the gap can be a problem if you can't get to breakeven fairly quickly. If you had played the reversal only, the profit would have been +15.5 to +18.

--Db

Hi Db,
Are you saying the idea would be to trade in the direction of the gap even though the gap is relatively small such as today's gap(less than 1%) or around 6 pts? Thanks.
Jerry

 

[dbphoenix]

Quote from mojo59:


Hi Db,
Are you saying the idea would be to trade in the direction of the gap even though the gap is relatively small such as today's gap(less than 1%) or around 6 pts? Thanks.
Jerry

No, NOT to trade in the direction of the gap, though when the gap is less than 1%, it doesn't seem to matter much and the opening range trade seems to be the tactic to follow.

In other words, if the gap is 1% or more, you're better off waiting for the gap to fill, or incorporating a gap-filling tactic into your strategy. But if it's less than 1%, you're only talking about a few points, and as the value of the NQ declines, the number of points contracts more and more to the point of triviality.

Therefore, rather than rely on historical statistical studies or even backtesting, you may have to rely on what you're seeing right now. Perhaps even 1% gaps are so small that one can't expect them to fill, in which case one would buy the break of the opening range even if the gap were more than 1%.

This is why gaps are not an integral part of the strategy. Both Natalie and Mike wait for the first half-hour (more or less) so that all that nonsense is out of the way. There's something to be said for that.

--Db

 

[mojo59]

Quote from dbphoenix:



I hear ya, and I understand. You're doing great, though you may also want to think about trading in the direction of the gap. Mike doesn't, and I'm undecided about it, but it does seem that trading in the direction of the gap can be a problem if you can't get to breakeven fairly quickly. If you had played the reversal only, the profit would have been +15.5 to +18.

--Db

Hi Db,
Sorry about my last post. What I meant was the idea would be to wait for the breakout in the direction which would fade the gap. I think this is what you meant as a possible addition to the system. I was just unclear if that would be done on a day like today in which the gap was relatively small or maybe the play would be to just take the first breakout as I did today. Thanks
Jerry

 

[dbphoenix]

BTW, you had asked last week about the effect of volume. Note that today was the lowest volume day of the year . . .

--Db

 

[dbphoenix]

This makes yesterday look downright exciting

--Db

 

[mojo59]

Hey db,
I'm backtesting a few things just for fun. Checking to see results if only morning trades were taken, trading only in the direction of filling the gap in the morning and using a longer term trend to take only trades in the direction of the trend. I'll let you know.
Jerry

 

[dbphoenix]

Quote from mojo59:

Hey db,
I'm backtesting a few things just for fun. Checking to see results if only morning trades were taken, trading only in the direction of filling the gap in the morning and using a longer term trend to take only trades in the direction of the trend. I'll let you know.
Jerry

Glad to hear it. Did you take the trades today?

--Db

 

[mojo59]

Quote from dbphoenix:



Glad to hear it. Did you take the trades today?

--Db

No trading for me on this volume, didn't want to push my luck. However, the short at 1011.50 would have been good for around 10 pts and 6 to 7 hrs of exciting action. Nottttt! I decided to watch it snow which it did all day here.
Jerry

 

[dbphoenix]

Quote from mojo59:


No trading for me on this volume, didn't want to push my luck. However, the short at 1011.50 would have been good for around 10 pts and 6 to 7 hrs of exciting action. Nottttt! I decided to watch it snow which it did all day here.
Jerry

Not necessarily. I took the short at 11.5 and got stopped out. There was also a legitimate re-entry that would have been good for 4-5 points, but I was falling asleep (we came within four points of target). I guess I'm getting spoiled, but sitting around all day for just a few points isn't worth it. On the other hand, if volume doesn't pick up, I could probably make the most of it with alarms.

--Db