Keeping It Simple

Quote from Bankedout:

On the other hand, what good is a strategy if you can't take every signal and expect to be profitable in the long run? I don't know the answer to that question really. It may be that the trending times make you so much money that the chop times don't seem so bad in hindsight.
More...

That is the key element of any trending strategy. For example, the strategy I posted here has made 55.5 this week and Tues and Wed weren't traded at all. As I've said, anyone looking for action, or for a Go long when the blue line crosses the red line sort of strategy isn't going to be happy with mine, and probably not with yours, either.

--Db
 
Passedout,

When looking at the chart you attached, you have to ask yourself: Are the swings clear to me? If the answer is no, you have to abandon a strategy based on timing trades to swings (at least for that particular chart). It could be that the trading vehicle you chose has a "personality" which is not suited to this strategy or similar. Or it could be that you simply need to change time periods on the chart. As you have shown with the line you drew, this trading instrument does seem to trend. Let's say that was a 1 minute chart. The trends you see on that chart, could very well coincide with swings as seen on a 6 minute chart of that trading vehicle. If that were the case, you could trade the 6 minute chart with the swing strategy. Or, you could stick with your chart, and draw trend lines, and trade off of them, ignoring swings and obeying lines.

Sorry if this doesn't answer your question properly. To me most of the "swings" on that chart are not clear to me, thus I would be uncomfortable trying to "force" my strategy on that chart.

Banker
 
I thought of another "rule" which I have used with success. I didn't include it in my original written strategy, because I didn't see how it would fit in properly or logically. As it turns out, I am not good at writing strategies which can be followed by anyone not willing to use discretion in their trading. Which is probably why I'm not really good at following written strategies either (being unwilling to abandon my own discretion or intuition and follow something blindly).

When I short a lower swing high, I have an initial target in mind. That target is that the down swing I am shorting must exceed the low of the prior down swing before ending. If this does not happen I almost always abandon the trade at the market. The reason being I am trying to capture trends, and my definition of a down trend is a series of BOTH lower swing highs AND lower swing lows.

Same goes for buying long on a higher swing low. My initial target is that the up swing I am buying must exceed the prior up swing's high point. For the same reasons. I'm buying there because I want to capture an up trend. My definition of an up trend is a series of higher swing lows AND higher swing highs. If the trade does not reach the initial target I have in mind, the chance of being in a "up trend" has diminished significantly in my mind.

It's these types of rules which help me stay out of trading ranges. For now, I don't know how to fit all of my "rules" into a written trading strategy that other people could try to use. Maybe that's why it's best that each person develops their own strategy, vs. following another person's strategy blindly.

Banker
 
Another "rule" that I have involves when I move my safety net stop with the trade.

Basically what I try to do is, well for example this morning. I entered long at 897.25 (8:41 AM central time). I placed the initial exit stop at 894.50, just below the higher swing low I was basing my trade on. I don't move that stop up until the swing high of 901 (8:44 AM) is exceeded. Meaning at 8:54 AM, I would move my exit stop from 894.50 to 897.00 It takes that long for me to move my safety net. The reason being, until then, there is no rational place to move it to. Also, I have to be on the lookout for a lower swing high (pre-emptive exit point), and don't have time to move my stops around anyway.

This is not exactly how Stan Weinstein describes moving around exit stops, so I guess this is another case where my written strategy is not followed blindly.

Banker
 
Quote from Bankedout:

Another "rule" that I have involves when I move my safety net stop with the trade.

Basically what I try to do is, well for example this morning. I entered long at 897.25 (8:41 AM central time). I placed the initial exit stop at 894.50, just below the higher swing low I was basing my trade on. I don't move that stop up until the swing high of 901 (8:44 AM) is exceeded.
More...

I did the same thing when I used this strategy. It's a good tweak.

--Db
 
Quote from dbphoenix:



I did the same thing when I used this strategy. It's a good tweak.

--Db
More...

Very true, without that rule, one could be tempted to TTMR like you said earlier. Which is really not the best way to get as much of a trend as you can in most cases.

I have thought of a few other rules. I'm going to try and put it all together this weekend. Meaning, modifying the original strategy I proposed to include some options. One thing I plan on is taking away the SAR rule, and making that an option vs. a pre-emptive exit at that juncture (which could be optional itself I suppose). I really do want to have my strategy down on paper for once. It's usually worked out just fine for me (trading) having the rules I use in my head, but it would be nice to get it on paper. Not so other's could try to imitate me if they wanted, just to make my rules as clear as possible to myself. I do sometimes forget a mental rule or two, and always regret it afterwards. Having it in hard copy may eliminate some execution mistakes on my end. Also there are a few extra rules day trading futures vs. what I used to do, so it's good to make those clear as well.

Additional rule: If you ever become confused whether buyers or sellers are in control, get out immediately. This usually shows up for me as confusion identifying individual swings, or confusion identifying sequences of swings (trend). Often this means the market is not moving decisively in one direction or the other, which makes me as a trend trader, be in an awkward position.

-Get back in when you regain clarity.

Don't initiate any new trades during periods of expected high volatility. For day trading futures this means I have to avoid initiating new trades during fed announcements or economic report release times. In the past when I was trading stocks, this meant I wouldn't take a new trade the day before, or the day of a company's earning's release, or other important planned fundamental event.

Don't initiate any new trend direction trades after (2:15 PM Central time?). I have to pick a time for myself. It takes time for a highly profitable trend to run it's course, and that's what I am after really. It's OK to join a trend in progress up to maybe 2:30 PM I have to work on that time as well.

I also want a time when I have to close any open trades. Maybe by 2:55 PM or 3:10 PM, I haven't decided that yet. I definitely don't want to wait until the last minute like 3:14 PM.

It's a work in progress I guess.

Banker
 
Yet another rule:

After morning trading, get out of the market between roughly 11 AM to 1 PM CT. Do something else. When returning, take a look at the big picture (whole day chart, or maybe even a two or three day chart) to determine the overall picture. Then go back to my "microscopic" view (.75 minute 2 hour chart) and take the next high probability trade I see (if I see one at all).

Like today, I watched the morning action until the up trend ran out of steam. I did some stuff around the house, and later on returned. In looking at the big picture, I noticed that the chop had remained, but it was gently rising. Nothing exciting at the time. That helps put my microscopic chart in perspective. I can picture the overall scene and roughly know important support and resistance areas, which helps me to determine the probability of a particular trade's success.

This whole strategy or set of rules will be larger than I thought. It's amazing how much stuff was rattling around in my head while I traded.

Banker
 
I ended up doing away with that strategy. It had some serious problems. The strategy tried to force the market or stock (whatever is being traded) to follow certain rules. If I have learned anything in the years I have been at this, it's that the market does not follow rigid rules. Sure it might for a while, but other times it just won't. Meaning if I limit myself to "enter short on first lower swing high" I may end up missing an important trend entirely. Either, I will "find" the trend later than that, or there simply is not an easily recognizable "first lower swing high", or perhaps even if there is a "first lower swing high" I will not act for other reasons. I was going to create a strategy that had all of these clauses and options to try and deal with all the ways a trend could be traded. The more I thought about it, the more I realized no matter how far I took that, it would never encompass every trend properly.

What I ended up with is something extremely radical (in relation to other strategies I have seen). Yet, in actuality it deals with the market on it's own terms. In addition it is extremely simplistic. It accepts the fact that no two trends are exactly alike. In thinking that way, you have to have a new definition of trend. For that I turned to Webster's Dictionary. Their definition of trend is the best I have found to date, it is:

Trend: A general or prevailing tendency or course.

Trends are not really about a sequence of swings, or following a line drawn on a chart, or having some magical moving average plot their course. Sure sometimes they are like that, but other times they are not. They always are as described by Webster's. Which means, if you accept that definition, you are free to look at any trend on it's own terms. So, if you wish, you are free to trade any trend.

That freedom itself could be the difference between you capturing a trend in it's entirety, or missing the move entirely.

In other aspects of strategy design, there are always ways to manage risk, or determine odds or risk/reward ratios, etc. etc. These ideas I have given up on as well. They are also limiting. I will only take this trade if.... All of these conditions are met. That itself could limit you to watching a profitable trend run it's course from the sidelines. Just because the odds, or the risk/reward or whatever were not determined to be in your favor. How am I to really know the odds, when the future is entirely uncertain? It could be that the moment I enter the trade, prices skyrocket. The "loss" considered prior to the trade in making a risk/reward decision would become pointless, as the prices immediately moved strongly in my favor, not to return. The opposite could happen as well, or anything in between.

The focus has to be on trading as best as you can, not worrying about ratios and probabilities. The main goal of a trend trader is to capture trends he or she sees in their entirety. That means, if you see an up trend, you focus on riding that trend until it ends. The focus should not be: Should I enter here or there?, should I exit here or there?, just get in the trend. Then the focus has to be on being honest with yourself. Trusting your experience and intuition, to let you know when the trend no longer exists. It's at that exact moment, that you must exit the trade. This I feel requires the "generic" definition of trend shown above. The trend does not necessarily start or stop because this line can be drawn, or that price has been exceeded, it starts when you realize that prices have a general or prevailing tendency or course, and it ends when that condition no longer exits.

There are four rules to follow, and one of them is not really a rule at all. First I will start with the definition of trend again.


--------------------------------------------------------------------------------

Trend: A general or prevailing tendency or course.

1. No trend = No trade. (If you do not see a clear up or down trend, there is no trade to take).

2. As soon as you are sure that either an up or down trend exists, enter in the direction of the trend, at the market.

3. As soon as you are sure that the trend you are following has ended, exit at the market.

4. Go back to step 1.

--------------------------------------------------------------------------------


That's all there is to it. That's what trend trading is all about.

If you want to place an exit stop, make sure it is far enough away that there is no possible way it could be triggered if the trend remains in existence. This stop should not be factored into the equation of where, when, or how you enter the trend.

And that's all I have to say about that. ;o)

Banker
 
You must log in or register to reply here.
Back
Top