Keeping It Simple

dbphoenix

dbphoenix

11-27-02 10:39 AM



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Quote from dbphoenix:

Not a bad day. Wound up with 8.5 NQ, but it took four trades to get there: 2 BEs, a -5, and a +13.5. Haven't decided whether or not to trade tomorrow.

--Db
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Hi Db,

I was wondering if you could share some more information about what it is that you are doing with the NQ. Would it be possible for you to explain:

Where it is that you enter.

Why you enter there.

Where you place an initial stop.

How you move your stop as a trade goes in your favor.

If you decide to exit without being stopped out, how and why.

I know this is asking a lot, but I am curious. Maybe you could walk through the trades from yesterday as an example. Or perhaps just share general rules or thoughts on what you do, without relating to specific trades. If I'm asking too much of you, I will understand if you do not share the specifics of your strategy.

Thanks in advance,

Banker
 
11-27-02 11:30 AM



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Quote from Bankedout:

Hi Db,

I was wondering if you could share some more information about what it is that you are doing with the NQ. If I'm asking too much of you, I will understand if you do not share the specifics of your strategy.
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Not at all (it's a bit difficult to understand why anyone would post on a trading board without being willing to discuss his strategy). Some of this has already been posted, but quite a few posts have been deleted.



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Would it be possible for you to explain:

Where it is that you enter.

Why you enter there.

Where you place an initial stop.

How you move your stop as a trade goes in your favor.

If you decide to exit without being stopped out, how and why.
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Currently I'm using SnoSur4's idea (posted on the first page of this thread) of entering breakouts with a 2pt trigger, both for initial entries and for reversals.

For the NQ:

The first entry op is after the first five minutes, if there has been a gap of at least 1% (if the gap is 3% or more, I will likely not trade that day). Otherwise, price is left alone for 15 or 20 minutes until the opening high and low are found. Entry is then made when one of these is broken by 2pts. If price remains within this range, there's no trade. If there's a report due out at 1000 and price has done nothing by 0950, I'll just wait for the report since everybody else seems to be doing so.

The initial stop is 5pts. When I'm 5pts ahead, I move the stop to BE. If and when price breaks the trendline, I move the stop to 1pt above/below the last reaction high/low. If price reaches the 10d average range limit and the last reaction high/low is uncomfortably far away, I may switch to a smaller timeframe to find a closer LRH/LRL, or even use an end-of-bar stop, particularly if there's been a ramp (it's often possible to squeeze out a few extra points by continuing to manage the trade, but this can take hours, so it depends on what your time is worth, though if you're trading two contracts, you can use an EOB stop with one and an LRH/LRL stop with the other, then just leave).

As for the chart display, I use 1m, 3m, and 5m charts of the ES and NQ. No moving averages, no Bollinger Bands, no stochastics, no Keltner channels, no RSI, no Williams' %R, no ADX, no MACD, no CCI. Just price candles and trendlines. I also maintain 30m and 60m charts (minimized) just so I don't forget about important support and resistance.

I never use pre-emptive exits. If it doesn't hit my stop, why should I sell? Though I will exit just before the close if my stop hasn't been hit by then. However, this is unusual.

As for yesterday, the first trade was in at 1111 and out at BE twenty minutes later.

The second trade was in at 1103.5 and out seventeen minutes later for -5.

The third trade was a reversal, in at 1110.5 and out nearly an hour later at BE.

The fourth trade was also a reversal, in at 1107 and out 90m later for +13.5.

I use the ES and NQ jointly to decide whether to take a trade or not. If, for example, the NQ is close to triggering an entry but the ES isn't anywhere near that point, I will generally pass on the entry as it nearly always fails.

--Db
 
Quote from Bankedout:



Ok, I did print out snosur4's post for myself. This is what I understand so far:

This strategy ignores whatever trading has occurred in the futures market before the cash market index opens. When the cash market opens, the roughly first 30 minutes of trading in the derivatives are not traded by Snosur4, but not necessarily by you. This opening time of varying lengths is observed from the sidelines to find an "opening trading range" to base initial trend following trades for the day off of.

Once this opening trading range is clear, entry stops (mental or physical?) are placed around the range. The trigger for the trade is not break out of the range itself, it is delayed by a point or two, depending on what contract is being traded (ES or NQ). The direction of the trade is determined by which way prices move out of the "opening trading range" first. I'll use NQ as an example. If NQ moves 2 points higher than the "opening trading range" a long trade is made.

The initial exit stop is set (mental or physical?). Snosur4 places the exit stop 4 points away from the entry price, you place the exit stop 5 points away from your entry point. So essentially the trade is considered broken if prices move back into the "opening trading range" by 2-3 points. This would basically prove via this strategy that the breakout was false, and the trend is not going in the direction of the trade as planned.

If the trade was stopped out, a new entry stop would be placed 2 points away from the prior "false breakout of range" high or low, in case the previous breakout direction was correct after all. If the "false breakout" was indeed a true reversal, and the trend was indeed determined to be the other direction from the failed trade, the stop on the other side of the "opening trading range" from the morning would trigger, and the trade would now go in that direction instead.

Now let's say the original trade was not a false breakout, and prices did end up trending from the "opening trading range" in the original direction without stopping you out for a loss. So you made your trading range in the morning, placed entry stops around it, one of them triggered, and the trade seems to be a success. Now, let's say the trade is a short sale trade. When the trade has progressed so that prices have fallen 5 points from your entry price, you move the stop down to break even. This much I feel I understand.

Now Snosur4 will take half of his initial position off the table when prices have moved 3 points in his direction. The other half is "leaving my original stop on the rest." and/or? "If the trend continues I will trail the stop usually manually by observing market structure. Sometimes I will scale out if I feel that it is running out of steam." Whatever that means to him.

You on the other hand said: "If and when price breaks the trendline, I move the stop to 1pt above/below the last reaction high/low." Which trendline break? The trend from the "opening trading range" area that you are currently trying to capture? If so, you do not close the position if the trendline is broken? Instead you would move the stop (if short) one point above the last reaction high? Right? What if the breaking of the trendline involved also breaking of the last reaction high? Do you move the stop to the next reaction high up? I guess this is where I start to lose understanding.

How is the 10d average range limit calculated?

What's a ramp?

What's an EOB stop?

Which chart (1m,3m,5m) are trades based off of? Which chart period are stops set on? Which chart period are reaction highs and lows determined on?

I can understand using the ES to confirm a NQ setup. I like that idea, and will try it myself.

Also, I know these are quite a few questions, but how are future trades determined? Since the "opening trading range" is probably historical as the day goes on, what triggers a new trade, say in the afternoon? Is it a whole new trading range, or something else? If it's a whole new trading range, how is that determined.

Thanks for helping,

Banker
 
Quote from Bankedout:
You on the other hand said: "If and when price breaks the trendline, I move the stop to 1pt above/below the last reaction high/low." Which trendline break? The trend from the "opening trading range" area that you are currently trying to capture?
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Yes.

If so, you do not close the position if the trendline is broken? Instead you would move the stop (if short) one point above the last reaction high? Right? What if the breaking of the trendline involved also breaking of the last reaction high? Do you move the stop to the next reaction high up? I guess this is where I start to lose understanding.
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I don't close the position just because the TL is broken. Breaking the TL only means that the trend has been broken. It does not mean that it has reversed. It has reversed only when the LRH/LRL is broken (or "swingpoint", if you prefer).

The LRH/LRL isn't going to be broken before the TL is unless the TL is drawn incorrectly since the LRH/LRL helps to define the TL. If they are nearly simultaneous, the position would be stopped out. Moving the stop would be a moot issue.

How is the 10d average range limit calculated?

What's a ramp?

What's an EOB stop?

Which chart (1m,3m,5m) are trades based off of? Which chart period are stops set on? Which chart period are reaction highs and lows determined on?

I can understand using the ES to confirm a NQ setup. I like that idea, and will try it myself.

Also, I know these are quite a few questions, but how are future trades determined? Since the "opening trading range" is probably historical as the day goes on, what triggers a new trade, say in the afternoon? Is it a whole new trading range, or something else? If it's a whole new trading range, how is that determined.

Thanks for helping,

Banker
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As to the average range, just add up the day's range low to high for 10 days and divide by 10, the maintain a running average.

A ramp is a hell on wheels move either up or down, similar to a climax run, but, unlike a climax run, there needn't be anything leading up to it. You'll find these often in the very early morning.

EOB is end of bar. If you have a target and you're approaching it, you have the option of using the end of the bar as a stop rather than letting price fall all the way back to the LRH/LRL.

Trades are based on the 1m chart. The 5m chart is used whenever possible for LRH/LRLs, but sometimes they're too shallow or vague, so I'll use the 3m instead.

As for future trades, these are nearly always reversal trades. If a long trade is stopped out for whatever reason, it's not reasonable to wait for price to drop all the way back to the morning low before entering a short. After three or four hours, it's a stale setup. Therefore, you look for double tops/bottoms, 2Bs, and other high probability setups.

--Db
 
:D :D :D What a holiday gift this is for me. Thank you so much.

Here is a simple futures method that works very well. Using an intermediate length moving average and a very short one, trade in the direction of the longer one when the shorter one crosses in that direction. Enter at the open of the next bar following the cross. Exit when the shorter ma crosses back thru the longer one in the opposite direction and the price does too.

The trick is don't get sucked in to watching only one futures contract. This method works nicely for any commodity that has a nice intraday range with good volume. Equities can be traded this way also. There is no need to be in a hurry. Using the 20 and 5 period ema's works great for futures. Wait until the 20 is obviously trending and then trade the 5. The slope of the 20 will automatically stop a loss or take a profit at a good price.

The ratio of the longer to the shorter ma is best when it is at least 3:1. Wait for a nice trend to develop and don't get stuck on just one vehicle.

Check out the charts for commodities and equities that meet the criteria and decide for yourself if there is good profit opportunity or not. This method is nothing new btw, and it is very objective.

:)
 
Quote from inandlong:
Here is a simple futures method that works very well.
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I traded something like this for several months not long ago and found it to be less than satisfactory. I've had much better success with Mike's ideas.

--Db
 
Yes that can be the case. It can be traded in such a way that will provide less than satisfactory results. I guess that was your experience dbphoenix. Tough break.

And of course, "satisfactory" is so subjective. Say for example 3 pts in the ES or 6 in the NQ, very popular vehicles, might be unsatisfactory to the 1-2 lot trader. But to the 5-10 lot trader the rewards are satisfactory. At least for me they are.

I guess it is just a matter of perspective. There are some very simple scalping methods too, but if the size isn't there, they are probably unsatisfactory. I much prefer a method that makes a few points quickly and put on some size, then a method that needs to be managed all day. Not that the all day deal isn't profitable too.

It is just a matter of perspective.

:)
 
I think I'm getting closer to understanding what you are doing, but I'm sure you will correct me if I am wrong (as you should).

So basically the "opening trading range" forms the basis of which direction you will start trading for the day, as a trend trader. The range in essence becomes a neutral zone, and when prices move out of that neutral zone, there is a possibility that they will trend in that direction.

Your job is to capture as much of the trend as you can. So let's say that prices break down from the trading range, which signals a short to you. You place your initial exit stop back inside the trading range, and wait for prices to keep falling. When they have fallen a certain amount in your favor, you move the stop to breakeven.

At that point if the trend continues in your direction, you "follow" the move down by trailing exit stops along descending swing highs or reaction highs. At some point, you will be stopped out.

This would result in a profitable trade, how profitable depending on how long the trend stayed in place, and the slope of the trend.

Now you are flat. I don't think it's a stop and reverse strategy, so I think you are flat. Now what we have is definitely a higher swing high (that's the one that stopped you out), and either a higher swing low or a lower swing low, depending on how the swings played out.

Now, let's say there is the higher swing high, but still a lower swing low. This could be a potential trading range situation. How exactly do you determine what is in front of you? Wait for more swings maybe? If they are contained within other major swing ranges, maybe create a new range zone to base a trade off of? Same rules as the start of the day regarding playing a breakout of this new range?

Or, let's say there is the higher swing high, and a higher swing low (that's how the trend ended). Would you enter the new trend at that point (long)? Or would you wait for a second higher swing high to enter, or a retracemant creating a second higher swing low? Or perhaps something else entirely.

I guess those are my questions right now, but I will probably come up with more.

I find it interesting that you base the start of your day's trading on an opening range. Another method I can think of, which may or may not be effective, would be to take into consideration the prior day's trend, or even the early morning trading in the contract before the cash market opens to determine which direction you should trade at the open in a more flowing sense of time. I also wonder what happens to the strategy when there is no real pause to the market on the early opening. Does it ever just sail straight up or down for the first 30 minutes of trading, and then keep going that way? I will have to look at my charts I guess.

I have been trying to follow trends also, but I haven't considered using the opening range starting point yet. It's interesting, that's for sure.

Banker
 
Quote from Bankedout:

At that point if the trend continues in your direction, you "follow" the move down by trailing exit stops along descending swing highs or reaction highs. At some point, you will be stopped out.
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I don't follow the move after I reach BE. The temptation is too strong to cut profits short. I wait until the TL is broken.

How exactly do you determine what is in front of you? Wait for more swings maybe? If they are contained within other major swing ranges, maybe create a new range zone to base a trade off of? Same rules as the start of the day regarding playing a breakout of this new range?

Or, let's say there is the higher swing high, and a higher swing low (that's how the trend ended). Would you enter the new trend at that point (long)? Or would you wait for a second higher swing high to enter, or a retracemant creating a second higher swing low? Or perhaps something else entirely.
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The swing should be fairly obvious. If it isn't, then I go to the 3m to find a better one. If I can't find one there, either, then I let price drop (or rally) until it creates one.

A new range may be created above the morning high. In this case, a breakout would be entered as usual. However, if the need for a re-entry occurs, the reason is most often that the stop was moved up too much.

This is not a strategy for somebody who wants a lot of action or who can't sit. It isn't for somebody who wants to pick at a few points repeatedly and make repeated entries.

There will generally be an impulse to the day. If there isn't, you're not trading. If there is, you follow that impulse and leave it alone.


I also wonder what happens to the strategy when there is no real pause to the market on the early opening. Does it ever just sail straight up or down for the first 30 minutes of trading, and then keep going that way?
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That's what the 5m range breakout trade option is for. If there's a gap of at least 1% but less than 3%, fading the gap is generally a winning strategy, at least it wins often enough to make the occasional 5pt loss acceptable. 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.

--Db
 
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