Keeping It Simple

[dbphoenix]

Quote from Bankedout:



No I'm not familiar with fanning. An explanation would be great. I marked a less steep general direction on my chart. I look forward to learning how to fan TL's.

It looks like the NQ is going to take its own sweet time, so I've marked up yours. I hope my numbering system isn't confusing. If it is, I'll do it over another way.

The very first tentative TL is drawn as usual. As soon as price makes a new high, tho (1), the TL can be adjusted to reflect the dominant trend. Here, TL1 is drawn under the new high1 and the last reaction low at the time, also 1.

When price makes another new high around 0945 (your time) at 2, then TL2 is fanned to incorporate the next reaction low (2).

When price makes yet another new high around 1000 (3), TL3 is fanned out to incorporate reaction low3. Ditto with 4.

If new highs continue to be made, then the TLs can continue to be fanned, which is why a broken TL should not be used as an excuse for a pre-emptive exit. However, if the TL is broken and a new high is not made but rather the last reaction low is violated, then you have a reversal, which is why the stop should be placed below that reaction low (unless, of course, the target is reached, in which case the stop is tighter).

--Db

 

[Bankedout]

Db,

I'm also wondering where you would have entered ES this morning (if you were trading it), and why you would enter there.

My guess is around ~8:50 AM central time, but I just want to be sure.

Banker

 

[dbphoenix]

Quote from Bankedout:

Db,

I'm also wondering where you would have entered ES this morning (if you were trading it), and why you would enter there.

My guess is around ~8:50 AM central time, but I just want to be sure.

Banker

If I were trading ES, I would have entered at 0948 EST at 894.

Incidentally, I'm already out. The NQ was only a point or so away from target, ditto the ES, so I used an end-of-bar stop to exit at 1037.5. I would have preferred a bit more, but this is my first day back and I'm flying a little blind.

--Db

 

[Bankedout]

Quote from dbphoenix:



If I were trading ES, I would have entered at 0948 EST at 894.

Incidentally, I'm already out. The NQ was only a point or so away from target, ditto the ES, so I used an end-of-bar stop to exit at 1037.5. I would have preferred a bit more, but this is my first day back and I'm flying a little blind.

--Db

Which was just a few minutes or so after the nexus of the universe this morning. ;o) I think today has really helped clarify your strategy in my mind.

Thank you,

Banker

 

[dbphoenix]

Quote from Bankedout:



Which was just a few minutes or so after the nexus of the universe this morning. ;o) I think today has really helped clarify your strategy in my mind.

Good. Visual examples are nearly always clearer than verbal (a picture is worth blah blah). And today was pretty straightforward, though agonizingly slow.

As to fans, you'll have figured out that eventually they will flatten since trends can't go on forever. What criteria one uses to decide whether the trend is over or just tired is a matter of choice, I suppose, but I like the last reaction point suggested by Mamis, Weinstein, etc. It means giving up a few points at the top or bottom, but it does tend to keep you in longer as well, which to me is the greater benefit.

--Db

 

[Bankedout]

Db,

One more thing. In this hypothetical ES trade you took this morning, you would have put your initial exit stop a pre-determined amount of points away from your entry price. I would have put mine just below what turned out to be the Nexus of the universe. Do you use a pre-determined point value to help with money or risk management? What if that initial stop you chose by point value was just above the Nexus (not known to be the Nexus back then), would you consider lowering it just a bit, or leave it be?

Banker

 

[Bankedout]

Also, let's say the ES today turns into what seems to be a head and shoulders top. As a reversal opportunity presents itself (if that happens), would you consider the line I drew with the least aggressive slope on my previous chart in the equation of whether or not you would take a down trend trade later in the day? Is that valid "support" in your mind, or shouldn't that be factored in to the reversal trade's potential chance of success?

It seems to me the "impulse" of the day is clearly up, and perhaps a down trend trade (if one would present itself) would be less likely to be a big winner this afternoon.

Banker

 

[dbphoenix]

Quote from Bankedout:

Db,

One more thing. In this hypothetical ES trade you took this morning, you would have put your initial exit stop a pre-determined amount of points away from your entry price. I would have put mine just below what turned out to be the Nexus of the universe. Do you use a pre-determined point value to help with money or risk management? What if that initial stop you chose by point value was just above the Nexus (not known to be the Nexus back then), would you consider lowering it just a bit, or leave it be?

Banker

I use a predetermined point value so that I don't have to think about it. I understand that stops should be placed outside support and resistance, but too often support and resistance aren't where we think they are, at least with regard to intraday trading, or we want so badly for them to be in this or that place that we ignore the market's message.

Therefore, I want the stop to be wide enough so that I will have an opportunity to see how the battle is shaping up, but not so wide that I seem to be daring the market to hit it.

Every instrument has its own rhythm and you have to learn the rhythm of whatever instrument you choose to trade. Some will tell you very quickly and with very little point loss that you're wrong. Others will take much longer and with more substantial losses. As regards the NQ, a good trend just won't pull back all that much, if at all. A middling trend will futz around and stop out those who insist on tight stops. A lousy trend will take you out very quickly. What you're looking for as a trend trader is a good trend. If and when you find one, stops won't be an issue. If the trend isn't a good one, you don't want it anyway, so you may as well get out with as little damage as possible.

The alternative is to look for smaller and smaller trends, which eventually sucks you into chop, and subsequently into scalping, and suddenly you're no longer a trend trader. Rather than deal with all that again, I'd just as soon not trade at all on those days when the trend is unclear or nonexistent. Beats giving the money back.

--Db

 

[dbphoenix]

Quote from Bankedout:

Also, let's say the ES today turns into what seems to be a head and shoulders top. As a reversal opportunity presents itself (if that happens), would you consider the line I drew with the least aggressive slope on my previous chart in the equation of whether or not you would take a down trend trade later in the day? Is that valid "support" in your mind, or shouldn't that be factored in to the reversal trade's potential chance of success?

It seems to me the "impulse" of the day is clearly up, and perhaps a down trend trade (if one would present itself) would be less likely to be a big winner this afternoon.

Banker

I don't concern myself with H&S patterns per se but rather the reaction points. That way I don't have to complicate matters with volume and necklines and all the rest of it. It is also for this reason that I don't consider TLs to be "support", any more than MAs. Price is support (or resistance), so that's what I pay closest attention to.

As to a reversal, I'd ordinarily look at that lowpoint at 1249 as a potential trigger, but the NQ and ES aren't anywhere near confirming each other here, and trading is awfully lackluster. Since I have money in the "bank" from this morning, I have enough to play a reversal if a good one comes along, and since we reached the targets, the probability of a nice reversal increases. But reversals are strictly an optional accessory with this strategy, and I'm not eager to give back any of the 16 points I made. And the longer this takes to set up, the more it will look like drift, which makes the reversal potential less attractive.

OTOH, at least some of this may be coming from this being my first day back. I hadn't planned on trading at all today, but couldn't pass up this morning's setup. Therefore, unless the market becomes energized somehow, I'd rather just TTMR.

--Db

 

[Bankedout]

Db,

Is this similar to how you fanned NQ this morning? Also, I put an arrow on the chart pointing to where I think you may have entered. Is that correct?

Thanks again,

Banker