Keeping It Simple
- Thread starter dbphoenix
- Start date
The two points from actual "breakout" as a measure of how strong the level of intention is interesting. I'm guessing you found that the narrower the figure, the higher the chance of false breakouts.
As far as the initial exit stop being 5 points away from your entry spot, that essentially means that since you are delaying your entry 2 points from the actual breakout price, you found that breakouts did not often retrace 3 points from where they originated. Otherwise you would be stopped out too often, and your strategy could eventually become unprofitable. It seems like a relatively wide figure to me, but if it works, how can I argue?
Another issue that may be important is whether your stops are limits or market orders. If they are market orders, you must wind up paying the spread sometimes. I can see using a limit stop on entry, but on exit a stop market order can sometimes save your life. Is the real loss amount ever 5.5 points per contract?
The only way I could imagine using 30 minute bars as a day trader would be for swing trading. I just can't see how they could be effective for trend trading, at least how I understand trends. I would imagine using the 30 minute bars to time trades while day trading the same way I would imagine using a sledge hammer to pound in a finish nail to hang a picture on the wall. Of course there probably is no mechanical way to define what you determine to be the opening range, so for those who want to be more mechanical, it may be an option.
In my example of exiting a down trend at the first higher swing low, you have to think about the strength of a trend. This would only be used by someone who only wants to be in the strongest trends, while they are powering away. A strong down trend will keep pushing each swing low lower than the previous one. This is great. When a swing down fails to move below the prior swing down, that doesn't necessarily mean the trend is ending. Like you said it could just be consolidating for a while before it pushes on in the same direction. Either way, whether it is really ending or not, the momentum has decreased. The sellers have simply lost the ability to drive prices as strongly downwards as they have been previously. It would have to be a personal reason to want to get out when that is the case. Or even to consider going long just because sellers have perhaps temporarily lost some control or momentum. I'm not saying it is correct or better, I'm just saying that it is possible to think and/or trade this way. Obviously in an up trend you would be waiting for the first swing high which does not exceed the prior swing high. Same loss of momentum in my mind, just this time the buyers are struggling (however temporary that may be).
Thinking along these lines, if you exited the down trend simply because you noticed a loss of momentum (current swing down ending above prior swing down), you would need to have some rules to re-enter with. Otherwise you will not participate if the trend ends up continuing down. One could be if the up swing did not exceed the prior swing high, you would re-enter short on rollover of the up swing. Once in this trade, you would have to make sure you exited if the down swing did not exceed the prior down swing. If that did not pan out, you would be in a possible trading range. This could lead to chopping you around.
If you go even further with this, it could become a stop and reverse strategy. I think I wandered off topic a bit...
Think back to when I was a member of your Yahoo "dbsburrow" message group. I had a strategy where essentially I would be considered a swing trader by someone looking at daily charts. I considered myself a trend trader, since I was trading on intraday charts. Anyway I was using Medved QT back then and my charts would not backfill for me. My exit strategy was basically trailing exit stops along swings or reactions as you call them. What I would do is start the day on the 1 minute charts and as that chart became too full I would switch to 3 minute charts, and when that became too full I would switch to 5 minute charts. You told me that mixing charts like that was a recipe for disaster, or something similar. On the other hand, we had discussions about "glass bottomed boats" for entries, and you felt it was fine to use a shorter time frame chart to fine tune entry timing. Maybe the whole episode was just a misunderstanding. Either way, I am comfortable using one time frame chart to time both entries and exits, as well as using that same chart to determine structure of swings and trends etc. I do however keep another chart minimized which shows a slightly longer time perspective for me. This is used to spot horizontal and/or angular support/resistance areas. By the way, you were absolutely correct in showing me the exit to that message group. As time wore on I drifted further and further from any form of fundamental analysis, and in due time I became purely technical. I didn't understand why you did what you did back then, but now I do.
Right now I'm trading on 1 minute bars, so a jump to a 3 minute bar chart would not be too wild for me to imagine. I will probably settle on something near that time period. I like to see the intricacies of each move during the course of a day. 15 minute bars would be out of the question for someone like me.
We are on the same page with reversals then, thanks. Have you noticed any relation between whether a signal will likely result in a successful or unsuccessful trade as that relates to time of day? Meaning, are the early morning and late afternoon signals generally stronger and perhaps even a higher chance of success than the mid day signals? I don't know if you pay attention to that or not.
You have been a great help, and I'm sure I will have more questions. Thanks for your time.
Banker
As far as the initial exit stop being 5 points away from your entry spot, that essentially means that since you are delaying your entry 2 points from the actual breakout price, you found that breakouts did not often retrace 3 points from where they originated. Otherwise you would be stopped out too often, and your strategy could eventually become unprofitable. It seems like a relatively wide figure to me, but if it works, how can I argue?
Another issue that may be important is whether your stops are limits or market orders. If they are market orders, you must wind up paying the spread sometimes. I can see using a limit stop on entry, but on exit a stop market order can sometimes save your life. Is the real loss amount ever 5.5 points per contract?
The only way I could imagine using 30 minute bars as a day trader would be for swing trading. I just can't see how they could be effective for trend trading, at least how I understand trends. I would imagine using the 30 minute bars to time trades while day trading the same way I would imagine using a sledge hammer to pound in a finish nail to hang a picture on the wall. Of course there probably is no mechanical way to define what you determine to be the opening range, so for those who want to be more mechanical, it may be an option.
In my example of exiting a down trend at the first higher swing low, you have to think about the strength of a trend. This would only be used by someone who only wants to be in the strongest trends, while they are powering away. A strong down trend will keep pushing each swing low lower than the previous one. This is great. When a swing down fails to move below the prior swing down, that doesn't necessarily mean the trend is ending. Like you said it could just be consolidating for a while before it pushes on in the same direction. Either way, whether it is really ending or not, the momentum has decreased. The sellers have simply lost the ability to drive prices as strongly downwards as they have been previously. It would have to be a personal reason to want to get out when that is the case. Or even to consider going long just because sellers have perhaps temporarily lost some control or momentum. I'm not saying it is correct or better, I'm just saying that it is possible to think and/or trade this way. Obviously in an up trend you would be waiting for the first swing high which does not exceed the prior swing high. Same loss of momentum in my mind, just this time the buyers are struggling (however temporary that may be).
Thinking along these lines, if you exited the down trend simply because you noticed a loss of momentum (current swing down ending above prior swing down), you would need to have some rules to re-enter with. Otherwise you will not participate if the trend ends up continuing down. One could be if the up swing did not exceed the prior swing high, you would re-enter short on rollover of the up swing. Once in this trade, you would have to make sure you exited if the down swing did not exceed the prior down swing. If that did not pan out, you would be in a possible trading range. This could lead to chopping you around.
If you go even further with this, it could become a stop and reverse strategy. I think I wandered off topic a bit...
Think back to when I was a member of your Yahoo "dbsburrow" message group. I had a strategy where essentially I would be considered a swing trader by someone looking at daily charts. I considered myself a trend trader, since I was trading on intraday charts. Anyway I was using Medved QT back then and my charts would not backfill for me. My exit strategy was basically trailing exit stops along swings or reactions as you call them. What I would do is start the day on the 1 minute charts and as that chart became too full I would switch to 3 minute charts, and when that became too full I would switch to 5 minute charts. You told me that mixing charts like that was a recipe for disaster, or something similar. On the other hand, we had discussions about "glass bottomed boats" for entries, and you felt it was fine to use a shorter time frame chart to fine tune entry timing. Maybe the whole episode was just a misunderstanding. Either way, I am comfortable using one time frame chart to time both entries and exits, as well as using that same chart to determine structure of swings and trends etc. I do however keep another chart minimized which shows a slightly longer time perspective for me. This is used to spot horizontal and/or angular support/resistance areas. By the way, you were absolutely correct in showing me the exit to that message group. As time wore on I drifted further and further from any form of fundamental analysis, and in due time I became purely technical. I didn't understand why you did what you did back then, but now I do.
Right now I'm trading on 1 minute bars, so a jump to a 3 minute bar chart would not be too wild for me to imagine. I will probably settle on something near that time period. I like to see the intricacies of each move during the course of a day. 15 minute bars would be out of the question for someone like me.
We are on the same page with reversals then, thanks. Have you noticed any relation between whether a signal will likely result in a successful or unsuccessful trade as that relates to time of day? Meaning, are the early morning and late afternoon signals generally stronger and perhaps even a higher chance of success than the mid day signals? I don't know if you pay attention to that or not.
You have been a great help, and I'm sure I will have more questions. Thanks for your time.
Banker
That's really very magnanimous of you to let us fight over what it is we are fighting over here according to you... Hmm... I, just like inandlong, thought that this board was about exchanging ideas, but it turns out that some already see in this some sort of fighting. Well, and I thought that I was paranoid...
There is no reason at all that a simple strategy should require so much discussion. If you have to take the bulk of these pages to explain your method, it is not simple. Check out the link www.dacharts.com. There are some nice methods there that work. They don't take anywhere near the space that db's takes. Look at the other methods described on the ethnios link in the Simplicity thread. The same goes there.
This stuff that db is writing about is completely off base. You want to present a reversal strategy, post it. Post all of them individually. You want to post a break out strategy and the exit strategy for it, do that. But this crap of quote and post some lengthy ambiguous explanation of non-specifics borders on ridiculous.
One of the reasons that I follow this thread is because I hope others will join in and post something worthwhile. Simple is worthwhile. Another reason I follow this thread is because I have seen dbphoenix post outright lies before, and I have called him on it, and shown him his previous quotes. This I will not tolerate whether about me or any other member.
I don't want to "bicker", but lying and backbiting, and the presentaton of erroneous information will not go unchallenged. As long as this thread stays outside of the Chit Chat forum or the Journals forum, I will be here. Since I am on ignore to dbphoenix, one of you might suggest to him that he move this thread to Journals or Chit Chat. I don't care what is said there, but out here where accurate information is important, accuracy is what you will have.
This stuff that db is writing about is completely off base. You want to present a reversal strategy, post it. Post all of them individually. You want to post a break out strategy and the exit strategy for it, do that. But this crap of quote and post some lengthy ambiguous explanation of non-specifics borders on ridiculous.
One of the reasons that I follow this thread is because I hope others will join in and post something worthwhile. Simple is worthwhile. Another reason I follow this thread is because I have seen dbphoenix post outright lies before, and I have called him on it, and shown him his previous quotes. This I will not tolerate whether about me or any other member.
I don't want to "bicker", but lying and backbiting, and the presentaton of erroneous information will not go unchallenged. As long as this thread stays outside of the Chit Chat forum or the Journals forum, I will be here. Since I am on ignore to dbphoenix, one of you might suggest to him that he move this thread to Journals or Chit Chat. I don't care what is said there, but out here where accurate information is important, accuracy is what you will have.
Quote from inandlong:
There is no reason at all that a simple strategy should require so much discussion.
My thoughts exactly. If something cannot be explained in one or two paragraphs than it is not simple, period. Mike's and Natalie's method is simple. If you add some simple elements to it, it will still be simple, but if you make a super-duper combo out of it, it ceases to be simple.
The title of this thread is getting a bit misleading.
Btw, one of my systems can be explained in one sentence: buy when (simple condition), sell when (another simple condition), very much same for a short entry, but in reverse order.
Stops have to be a matter of choice because of the matter of risk tolerance. The best stops, of course, are outside support and resistance, but this is often far too wide for many traders. And there are other ways of determining whether one is right or wrong in a trade without having to risk a great many points to do so. Five points seems to me to be a good compromise.
What you have to remember about stops is that they are largely irrelevant to the trade. If you've read the market and the set-up correctly, stops are a moot issue. But we don't always read the market and the set-up correctly. Sometimes price has a little trouble taking off. And sometimes we're just plain wrong, such as when price reverses immediately and barrels in the opposite direction.
Therefore, the question is not so much determining exactly how tight or how wide the stop should be but focusing on the dynamics of the struggle between buyers and sellers and becoming intimately familiar with a select set of high-probability/low-risk setups.
Since trading has been so lackluster, this hasn't been a problem. Lackluster trading has also made filling stop-limits a lot easier. Eventually this will change, but who knows how long it will be before that happens?
It's supposed to matter a great deal, but so far I haven't found that it does. On the other hand, the kinds of setups I look for tend not to occur during that midday period, and unless I've been stopped out somehow, I'm managing during that period anyway, not looking for re-entry opportunities.
On the other hand, if I haven't made a profit in the morning, I often just quit rather than try to pull something out in the afternoon. It's certainly possible to do well in the afternoon even though the morning was drek, but the velocity is generally in the morning. Plenty of people trade only in the morning. I don't see why not.
--Db