Quote from Bankedout:
I'm just going to stay focused.
Smart. Ignoring the noise is the only way to make any progress.
When you play your reversals, are you using the same 2 points from "breakout" price entry and 5 point initial exit stop, no matter what setup you are trading off of? Or do you adjust point values for length of candles on the pattern/volatility etc.? I'm just curious if those early morning point values are a constant for you throughout the session.
Yes, I do. I backtested several different combinations of trigger and stop, but they just weren't satisfactory. The two points seems like a lot to give away, but the tick business, or even one point, was not an adequate measure of intention. This doesn't mean that the two points is risk-free, but the results were better, so who am I to argue?
On the other hand, this is not a mechanical strategy. If you've got some experience under your belt and you know that you're about to do a stupid thing, then don't do it. Today, for example, the first reversal only got four points past my entry price rather than five, so, mechanically, I should not have moved the stop up to BE. However, this was the third attempt to get past that little congestion zone, which was turning out to be not so little after all. And the trendline did get broken just above BE. So rather than be stubborn, I raised the stop to BE (if the trendline had not been broken, I may have left it alone; I guess we'll never know). In any case, doing so put me in a good position to take the next reversal trade which wound up being good for three points.
I also like the idea of starting the day's session coming off of an opening range breakout. I will probably play the break differently than you or others, but that's how I operate. Usually I'm willing to assume much more information risk than others (entering earlier than them), and trade that off for potentially less price risk (initial exit stop closer to my entry price). Whether this will work out better than your plan or not, I have no idea. I do know I will feel more comfortable. If it doesn't work out for me, I can always move closer to what you or others are doing. Like Bugs Bunny said, "if you can't beat 'em, join 'em."
As far as I know, nobody else is doing this. Mike, at least, uses a breakout of the 30m bar. Natalie had been using the 30m bar as well, but I believe she's been experimenting with a 20m bar. The reason why I chose the 1m bar was that I wanted price to find its own level and breakout point. Sometimes this is as early as 0935, depending on the gap, if any. Sometimes it's 0947. Or 0953. Or whatever. Waiting for an arbitrary interval isn't logical to me, though it makes sense for anyone who wants to lean toward the mechanical side (e.g., dacharts.com).
Granted this is the least simple trade of the day. The degree of gap, if any, will affect the struggle, as will 0945 or 1000 economic reports. If there's no gap and no reports, it's easy, like today. If there're both, then choices have to be made, though if one doesn't want to make them, a breakout of the 30m bar may be just the thing.
In addition to that I will consider your idea of when to exit a trend trade. As I understand it, you do not trail stops along lrh/lrl's you draw the trend line and when that is crossed you move your stop to the deal breaking area +1 point.
That's correct. I used to trail the swings, but I found that I was too tempted to TTMR, especially if the trade was going particularly well. Instead, I trust the impulse and just leave it the hell alone. This may mean that you have to re-define what it means to be wrong in the trade, and you may even have to be satisfied with less than the maximum number of points. But if you catch a trend, you will also avoid having to make continuing re-entry decisions.
What I have been doing is let's say I'm short a down trend. I try to exit on the first higher swing low. The tricky part is determining when the down swing is really over, and the up swing is born. That I feel is usually subjective, and at least for me, intuitive. This gets me out early, but there are advantages/disadvantages to everything. Incidentally that would also be the exact location I would like to buy long when stalking a down trend. I know you like to enter on break of a swing high, vs. the setting of a higher low.
I understand what you mean. In all these years, I've never found any better definition of trend reversal than Sperandeo's. No, it doesn't work every time. But nothing else comes even close. Therefore, until that last reaction high/low is taken out, I assume that price is simply resting in preparation for a continuation of the move (one reason why I don't want to get too close to this with a stop). Granted there may be times when the reaction takes place at the same time or after the trendline break, but that's okay (this happened today on the first short trade). The same point is used to cover either way. And there's time to enter a reversal as well, though you have to be ready for it and not futz around.
As for your example, sometimes the higher low is enough and sometimes it isn't. A higher low may simply be a part of the consolidation process, and if it has not yet broken that last swing high, then the odds are that consolidation is what it is. Yes, you may pick up a few extra points by getting in "early". But you may also lose your entire loss limit by entering on the wrong side of the trade and be in a poor position to make a continuation entry to boot. Depends on what you want and what you're willing to risk.
What I will not take away from your strategy is the use of multiple time period charts. You are the one who drilled into me the use of one time period chart to manage my trades. I am grateful you made that point to me long ago. I am comfortable using one time period chart for entries, stops, exits, trends, etc., and would be uncomfortable having a 1m, 3m, and 5m chart open and deciding which to use for what. I will pick either the 1m, 3m, 5m or whatever and use it for everything. Maybe 2.5m would make sense.
I don't recall suggesting that you use only one timeframe. The 1m may be good for entry, but it's terrible for trendlines and reaction points, unless you're scalping, which would defeat the purpose of the strategy. You may find the 3m to provide the best trendlines and reaction points. You may even want it for entry. But you should have at least one chart in a longer timeframe open for context (you needn't avoid going long just because price is approaching resistance, but you will likely want to know that it's there).
There is no one and only timeframe here. You may want to use a 15m bar. The point of all this is to provide ideas. Perhaps somebody will take away just one thing to improve their results. I picked up several ideas from Mike, but I doubt he'd recognize what I'm doing (but then you never know).
I would be happy to discuss your favorite reversal patterns and how you use them. I'm familiar with many from my trading, but it can't hurt to find out if I am missing something that I could add to my arsenal.
The first reversal today was marginal at best. Ordinarily I'd have liked to see a double bottom or a 2B. But with volume what it was, that didn't seem likely. If I hadn't had any money in the "bank" (the previous trade), I wouldn't have taken it at all.
The second reversal, though, was much better in terms of trader psychology. There was a congestion zone providing resistance, there were three attempts to get through it, there was a trendline break, all of which told longs to sell and which encouraged shorts to enter. I wish that the day had been a bit longer. Given the action just after the bell (before that big spike down), I might have made an extra 3-5 points.
The patterns I look for are nothing complicated: Ms, Ws, lateral (not trendline) support/resistance, 2Bs. I'm sure you know as many as I do, but I focus on only a few high-probability/low-risk setups and let everybody else fight over the others.
--Db
