Keeping It Simple

As to your entry, I assume you used the low of the 0947 bar to set your trigger. You could also have used the low of the 0938 bar.

As to your stops, there is no "proper" way. What is best is whatever is most comfortable for you. The sticking point in this strategy is leaving it alone, i.e., resisting the impulse to take profits. Once you accept the idea of the day's target, you can relax on your stops and not follow so tightly.

For example, you say that you were almost stopped out at 1153 when the price got within a hair of your reaction high stop. Since price had not yet reached the target, you could just swallow hard and place your stop above the preceding reaction high, i.e., wherever you had placed your stop just previous to tightening it (1006 on the 3m chart), in order to give it some extra room. Or you can just leave it at breakeven until you reach the target. Granted this means giving up quite a bit of profit if you're wrong. But, based on my backtesting, the odds of hitting the target are much greater than being stopped out beforehand unless you're too tight. And, as it turned out, the target didn't get hit until 3pm.

As for exiting after the target is reached, you can use end-of-bar stops on the 3m, or you can place your stop "one bar back" which, in this case, would be the top of the 1457 bar.

Glad it worked for you. Twenty points is nothing to sneeze at.

--Db
 
Hi Db,

I hope you don't mind my asking how you dealt with Tuesday's trading on the NQs.

The reason I ask is I was wondering if the morning trade upwards right after 10am shouldve been taken or not. I had my doubts coz the NQ wanted to go up but the ES was kinda wanting to drift lower, and I've noticed that when the 2 arent in sync brkouts dont do too well or fail.

This is how I did Tuesday:
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-bot at 983.50, then moved the stop to BE when 988.5 was reached, and got stopped at BE about 6 mins later or so.

-in the afternoon, shorted the NQ at 973.50 after the 2:00 brkdown at 975.50 and covered at 967.00.
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I also got more curious after re-evaluating the ES movement, since the 10:00 trade wouldve resulted in a loss at the initial stop.

Further, at 10:15 or so the ES broke the open trading range low of 837.25, making the system short at 836.25, which became a false brkdown.

If you were trading the ES, would you have taken either of the 2 or none. I hope you dont mind my probing questions.

At this point, I'm really more interested in understanding the system and making it work well with how I view the mkt and my tolerance rather than seeing + signs on the board. So I hope you won't mind too much.

Finallay, as I start getting used to the system a bit, I have a few kinda funny questions to ask also:

1. after the opening trading range is made lets say between 9:30 & 9:50 for example on a non-news day, you will go on the brkout of the range as long as the price hits above the high or below the low, not really caring if there was a base or not before the brkout. Am I correct?

2. Just wondering why 2 pts is used on the brkout for the NQ, and not 1.5 or 2.5, again this may sound a little silly to ask. Hope you don't mind my ignorance.

Thankyou very much again for your availability and all the help.

zoo
 
Quote from arzoo:

I was wondering if the morning trade upwards right after 10am shouldve been taken or not.

I didn't. It was travelling in the direction of the gap. I know that it feels as though the price is getting away from you, and the temptation to jump in is almost intolerable. But if you look over several months' charts, you'll see that those sorts of moves are very rare. If they don't actually make a "Z", there will at least be a retracement which will enable you to get in, if the move is genuine. Most often, it isn't.

This is how I did Tuesday:
---------------------
-bot at 983.50, then moved the stop to BE when 988.5 was reached, and got stopped at BE about 6 mins later or so.

-in the afternoon, shorted the NQ at 973.50 after the 2:00 brkdown at 975.50 and covered at 967.00.
---------------------

As I said, I didn't take the first one. But there was another trade if one wanted to assume the risk.

Even though the first upswing didn't reach the day's target, and even though there was no obvious resistance at the point at which it turned, one could have played the reversal as a 2B since the ES made a double top at the same time, entering around 984.

At the moment, I'm not including these kinds of reversals in the strategy unless the day's target has been reached. And I don't know how I'd make a "rule" about this. But when the reversal is so obvious, it's a shame not to take advantage of it.

As for the afternoon, yes. Which brings up another point to consider. You'll note that the NQ didn't quite reach its target, but the ES did. Under those conditions, it makes sense to exit the NQ position as if it had reached its target. There's always a possibility that the ES will launch into a range expansion and the NQ will follow along until it actually reaches its target, but possibility isn't probability. Of course, if you're trading at least two contracts, then the solution is easy: take the profits on one and let the other ride.

I also got more curious after re-evaluating the ES movement, since the 10:00 trade wouldve resulted in a loss at the initial stop.

Further, at 10:15 or so the ES broke the open trading range low of 837.25, making the system short at 836.25, which became a false brkdown.

If you were trading the ES, would you have taken either of the 2 or none.

I wouldn't have traded either since they were nowhere near in synch, at least until 1110.

1. after the opening trading range is made lets say between 9:30 & 9:50 for example on a non-news day, you will go on the brkout of the range as long as the price hits above the high or below the low, not really caring if there was a base or not before the brkout. Am I correct?

Yes and no. There doesn't have to be a base, but if, for example, price moves up, sets the range high, then plummets to the low at that point, I won't enter because there is always a bounce under those conditions which will nearly always stop you out. If there's a rapid 100% retracement, I'd like to see that retracement be "absorbed" with a little sideways action. Or non-action, if you like. That way, if it's more than just a gap fade, it will drop decisively below the opening range low. If it's just a gap fade, price will bounce up into chop.

2. Just wondering why 2 pts is used on the brkout for the NQ, and not 1.5 or 2.5

That was Mike's idea, and it does seem to be the right trigger. You want a trigger that's large enough to show intent. A tick or two isn't enough, as that can be nothing more than noise. Even a point and a half isn't enough since price very often hits that price, then reverses. It sometimes reverses after two points as well, but not nearly as often. You could make it even bigger, 2.5 or 3 or more, but then you'd have to make you stop wider. As important as the size of the trigger is being able to assess the risk and probability of the setup. If the setup's no good, then you're just leaving it all up to chance.

If you've done your best and you still have what you think is a questionable reversal, you always have the option of tightening the initial stop, preferably someplace logical. No need to sit there like a chump and watch your five points be eaten away. But assess the setup as objectively as possible. Don't take it just because you're bored.

--Db
 
The best day in quite a while if one took the reversal: +30pts. Enter the range breakout as usual, exit near the target with an end-of-bar stop (using the 2m chart is an option when the 3m consists of long expansion bars, but even if the 3m had been used, the trades would still have added up to 27.5), take the reversal, exit the other end the same way.

--Db
 
Hi Db,

Good day indeed! Just wanted to ask how/why you exited the 1st trade and what you saw in the reversal (what was the signal to go short).

Thanks.

On my part, I got in at 965 (opening brkout) and out at 977 simply because it was around the target and the move was straight up, so I expected a decent pullback and decided to take the gain.

I was a bit slow on the reverse though, since I always wait for a formation first (often I do miss them... I'm still trying to figure out how to do reverse moves well). I only shorted at 965, after the small base at 967 was broken and got out at 956 after LRH on the TL break.

I think I'm slowly getting there, but still quite a ways off.

Thanks again.
 
Quote from arzoo:

Just wanted to ask how/why you exited the 1st trade and what you saw in the reversal (what was the signal to go short).
More...

I backtested this with the NQ only because the NQ was what I had been working with, but as I continue to trade this system, I find that monitoring the ES is essential. There are exceptions, but monitoring the ES nearly always keeps you out of losing trades in the NQ and nearly always prevents you from missing opportunities in the NQ.

For example, to answer your first question, I exited the first trade on the NQ, even though the NQ hadn't quite met the target, because the ES met its target, at least within a point. The same situation arose on Tuesday, when the ES actually went beyond its target a bit. The NQ hadn't quite gotten there, but the action in the ES suggested that I not linger.

As for the reversal, this is the sort of action that I never was successful with in stocks. When you've got a parabolic move, there's really no way of knowing, unless there's obvious resistance, whether the stock is going to reverse or just jerk you around. And since you're generally dealing with expansion bars, the stops have to be pretty wide.

In this case, though, the ES reached its target and the NQ was damn near. That, plus the shooting star/dark cloud cover (depending on bar length) at the top, increased the probability for the entry substantially. There is also the added advantage in this strategy of exiting with one point and not having to enter until the two-point threshhold is reached. This gives you a little time to think, and since you know in advance where your entry point and stop are going to be, you can set up the orders in advance and just sit there and wait until it's time to pull the trigger.

Probability or no probability, tho, this sort of reversal requires stepping off the curb, and that can be tough. But waiting for the spike-and-ledge, like you did, is perfectly okay. If the ledge turns into a double top, you're not yet in the trade. If it drops, as it did this time, there you are, and you gave up only a couple or three points, depending on where you exited the long.

There's also your "money in the bank" to consider. You made 12 or 13 points on the way up, so if you entered with a stop just below that topmost bar, or what looked like the topmost bar, you could risk a few points in case price went a bit further since you're in a profit position. There's no way I'd suggest taking a reversal like that unless one had already made a profit on the way up. Much better to short the ledge (or double top, if any).

As for exiting on the way down, that was easy. Every high after 1130 was lower than the previous high on the 3m chart, so trailing the stop was a no-brainer. But getting out on a TL break was perfectly okay, too.

Now as for the next reversal, that was somewhat of a surprise. I thought by then that the market would have shot its wad. But it was a perfectly good H&S bottom on both the ES and the NQ with a practically flat neckline, so there wasn't any reason not to take it. That was worth another 20 pts.

So, all in all, the day was worth between 40 and 50 points, depending on where one exited the first long and entered the short.

Going back to the ES, this was helpful on Tuesday with the first reversal as well. The NQ didn't reach its target, and I ordinarily would not have taken the reversal, but, at the same time, the ES made a double top. This led me to suspect that the NQ was creating a 2B and not just a retracement; therefore, no reason to wait for it to continue. Same thing happened on Wednesday around 1000. The NQ looked like it was just making a retracement, but the ES made a double top. Therefore, one could short the NQ as a 2B (even though it hadn't reached its target then, either). These are a bit like putting the cart before the horse as the contract isn't reaching the target before reversing. But, there's been a lot of that lately, and as long as the setup is high probability and low risk, I see no reason just to sit there and stare at it rather than take it. It isn't a scalp as the reversal may well reach the day's target on the opposite side. And if it doesn't, one ought at least to be able to get out at breakeven.

It's a work in progress.

--Db
 
DB,

by the way, this may sound silly, but I've been going through some historical charts by hand to see how the NQ & ES behave.

Something that popped into mind was if the opening range isnt broken by quite a while, let's day upto 10:45 or 11am. And makes a breakout only then, do you take the trade or does the strategy change and you only take trades that are off good patterns ?

Again, my utmost thanks DB, for the effort, patience and willingness to share. I don't imagine too many people willing to offer such help.

zoo
 
Quote from arzoo:

if the opening range isnt broken by quite a while, let's day upto 10:45 or 11am. And makes a breakout only then, do you take the trade or does the strategy change and you only take trades that are off good patterns ?
More...

Depends on how wide the opening range is, though I haven't made a rule out of it. If the opening range is fairly wide, then the price has to travel quite a distance in order to break out of that range and may expend most or all of its force just in getting there, much less continuing on to the target. The narrower the range, though, the more contained the price is, like Friday. Thus when the breakout comes, there's more behind it.

And part of it depends on how much your time is worth, and how much time you want to devote to this, and whether you want to trade only during the morning.

Look at Wednesday, for example. If one didn't take that first reversal but waited instead for an ORB, he wouldn't have been in until after lunch. That's a long wait, and it may not have been worth the 7 or 8 points to whoever was doing the trading.

The market may assume a very different character during the coming months. Anybody using this strategy is going to have to keep an open mind, continuing to look for the trend and continuing to avoid the chop, but perhaps expanding the definition of what constitutes an opportunity, such as taking a reversal before the price has reached the day's target.

--Db
 
Quote from Maxito:

Just a note from a follower, thanks for the effort to make your posts !
More...

You're welcome. Let me know if you start using it. I'll be interested in your experiences.

--Db
 
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