Making of a method

[game]

5/8/13

T1: +2.00
T2: -1.75
T3: +1.75
T4: -0.75
T5: -0.25
T6: +2.0
T7: -0.75
T8: -0.75
T9: -1.75
T10: BE
T11: -0.50
Net: -0.75

8:32 Sell stop at 2945.75
8:32 Stop hit
8:35 Exit Buy 2943.75

8:37 Buy stop at 2943.50
8:38 Cancel buy stop - retracement lowers and distance from buy stop
is now too big

8:40 Buy stop at 2943.75
8:40 Cancel stop

8:41 Sell stop at 2942.50
8:42 Stopped in
8:42 Exit at 2944.25

8:44 Buy stop at 2946
8:44 Stopped in
8:46 Exit 2947.75

8:49 Sell stop 2947.25
8:50 Stopped in
8:50 Exit Buy 2948

8:50 Buy stop at 2948.50
8:51 Cancel stop

8:52 Sell stop 2946.75
8:52 Cancel

8:54 Buy stop 2949.50
8:54 Stopped in
8:55 Exit 2949.25

8:56 Sell stop 2948.50
Cancel

8:57 Buy stop at 2950
8:57 Stopped in
8:59 Exit 2952

9:00 Buy stop at 2954.50
Cancel

9:02 Sell stop at 2952.25
9:02 Cancel

9:02 Buy stop at 2954
9:02 Stopped in
9:03 Exit Sell 2953.25

9:04 Buy stop at 2954.50
9:05 Cancel

9:05 Sell stop at 2952.75
9:05 Buy stop at 2954.50
9:05 Stopped in
9:07 Exit 2953.75

9:08 Move sell stop to 2953
9:09 Stopped in
9:10 Exit Buy 2954.75

9:13 Buy stop at 2957.75

9:17 Stopped in
9:19 Exit Sell 2957.75

9:20 Sell stop 2955.75
9:21 Stopped in
9:22 Exit Buy 2956.25


Summary:

Negative: The movement shown by the first few trades as well as yesterday’s extended trend run influenced me to expect movement today. Led to overtrading.

Positive: I showed flexibility and a willingness to change positions. For the most part, the trend was followed

Negative: Being afraid of price. Trade 5 is a good example. Price never broke swing low but I was spooked. Same thing on Trade 7.

Positive: The entries were based on retracement logic although some were initiated at pullback high.

Negative: Trade 6’’s exit was influenced by the small losses on the prior 2 trades. I wanted to
make up for it. But the right thing to do would have been to stay with it until trend showed loss of momentum.


In general, when a trade is showing a loss or when I have some profit in it, I start thinking that the price is going to either drop through the floor or rocket away from me. Most often though, this does not happen. Price may move adversely but it takes time, or the trend may slow down - but it gives warnings. Yes there are times when price moves very fast, but it is more of the exception.


Thinking about speed is causing fear.


Also, if I had not exited trade 6 because of wanting to lock in a few points, I would have been in for the majority of this uptrend. None of the swing lows were threatened and I wouldn't have needed to initiate any further trades.

 

[game]

Quote from yossy:

Regarding the retracement scenarios, maybe even (2) can be considered as the ranges in retracement contract with no new lows and if accompanied by contracting volume could make a buy.

Starting yesterday I began quantifying the conditions within the RET pocket. Things like distance of eventual R bottom from swing high, range within RET, etc. I hope that after 100 or so trades this data will be able to shed some light on this issue of action within a retracement pocket.

 

[game]

Question on S & R:

If there is an established R, then one expects to encounter "resistance" there. But what is actually happening when price gets to that zone? Are traders thinking -

Trader 1: Look price has reached the level where I last sold it. So let me short some more.

Trader 2: Hey price just recovered back to where I had bought so let me sell to get to BE.

Trader 3: This is a good zone to exit the trade because I am "expected" to encounter Resistance.

I realize that price is a composite of all possible actions - but how can one think of resistance in terms of most likely trader behavior?

And perhaps another corollary question: In an uptrend one is generally advised not to trade counter trend. If price barely breaks that DS line and momentum slows just a little, one could bet on a reversal. But it is said that this is not a good idea because you will have to go "through" all the trades that made up the uptrend. What is this "going through" all about?

Is it similar to the S & R zones or is there a different dynamic at play?

 

[game]

I did find this. To quote you -

"Put simply, support is the price at which those who have enough money to make a difference are willing to show their support by retarding, halting, and reversing the decline by buying. Resistance is the price at which those who have enough money to make a difference attempt to retard, halt, and reverse a rise by selling. Whether one calls this money professional or big or smart or institutional or crooked or manipulative or (fill in the blank) is irrelevant. If repeated attempts to sell below this support level are met by buying which is sufficient to turn price back, these little reversals will eventually form a line, or zone. Ditto with resistance.

Before coming to any conclusions about what “works” or “doesn’t work”, and thus does or does not provide an edge, one ought to keep in mind that a given event -- such as price seemingly finding support or resistance at a trendline (or moving average, candlestick, Pivot Point, Fib level or whatever) -- may be only incidental to what is truly providing that support or resistance."


Is that is then? I am trying to understand this intuitively so it can be used in the context heavy trading that Price action is. Is it worth it to uncover any sort of 'why' here? Perhaps to create a story about trader motivations?

 

[dbphoenix]

Quote from game:

Question on S & R:

If there is an established R, then one expects to encounter "resistance" there. But what is actually happening when price gets to that zone? Are traders thinking -

Trader 1: Look price has reached the level where I last sold it. So let me short some more.

Trader 2: Hey price just recovered back to where I had bought so let me sell to get to BE.

Trader 3: This is a good zone to exit the trade because I am "expected" to encounter Resistance.

All of the above. Not that it would do you any good to know. There are hundreds of millions of traders, most of them beginners, who are trading at the same time you are. So wondering why they're doing what they're doing is a waste of time, assuming you have the time to spare in real-time trading, which you don't.

I realize that price is a composite of all possible actions - but how can one think of resistance in terms of most likely trader behavior?

You never know. You have to think of as many possible outcomes as you can and prepare for them. If you're prepared, you won't be surprised.

And perhaps another corollary question: In an uptrend one is generally advised not to trade counter trend. If price barely breaks that DS line and momentum slows just a little, one could bet on a reversal. But it is said that this is not a good idea because you will have to go "through" all the trades that made up the uptrend. What is this "going through" all about?

Is it similar to the S & R zones or is there a different dynamic at play?

Who said this?

 

[dbphoenix]

Quote from game:

I did find this. To quote you -

"Put simply, support is the price at which those who have enough money to make a difference are willing to show their support by retarding, halting, and reversing the decline by buying. Resistance is the price at which those who have enough money to make a difference attempt to retard, halt, and reverse a rise by selling. Whether one calls this money professional or big or smart or institutional or crooked or manipulative or (fill in the blank) is irrelevant. If repeated attempts to sell below this support level are met by buying which is sufficient to turn price back, these little reversals will eventually form a line, or zone. Ditto with resistance.

Before coming to any conclusions about what “works” or “doesn’t work”, and thus does or does not provide an edge, one ought to keep in mind that a given event -- such as price seemingly finding support or resistance at a trendline (or moving average, candlestick, Pivot Point, Fib level or whatever) -- may be only incidental to what is truly providing that support or resistance."


Is that is then?

Yep, that's it.

I am trying to understand this intuitively so it can be used in the context heavy trading that Price action is. Is it worth it to uncover any sort of 'why' here? Perhaps to create a story about trader motivations?

See above.

You'll learn how to recognize support and resistance with practice. When price approaches one or the other, how does it behave? Does it move as though what you thought was S/R isn't even there? Or does it stall and choke? If and when it does move through, does it bust through as if through a barrier? Or does it just wander around like a drunk sailor in a dark alley? Are your S/R something that can be seen by the 5m people? the 15m people? the 60m people? The more people who can see it, the more likely something will happen. They can't react to it if they don't even know it's there. Keeping this in mind will help you avoid focusing on trivial or imaginary S/R. Is it for example a coincidence that the NQ stalled for four days at the top of its daily trend channel?

 

[game]

Don’t take reversals unless there is an actual reversal
Be patient with price during entries
Balance being flexible with taking only compelling trades


Trade 1: 0.50
Trade 2: -0.25
Net: 0.25


Summary:

Trade 1: Price broke the last swing high after entry but then stalled. I like to see price take off once it crosses previous high so exited as price came back down towards entry.

Trade 2: Same as trade 1 in that the trade worked upon entry but then price stalled and started to come back.

There is probably a difference between giving a trade time because it does not immediately work upon entry versus giving a trade time even though it works in the beginning but is now at or below entry price.

In the second case, price is meeting a barrier 'after' having exhibited clear movement - thereby nullifying the logic of the trade - while in the first case the conditions that led to making the entry may still stand.

 

[game]

And perhaps another corollary question: In an uptrend one is generally advised not to trade counter trend. If price barely breaks that DS line and momentum slows just a little, one could bet on a reversal. But it is said that this is not a good idea because you will have to go "through" all the trades that made up the uptrend. What is this "going through" all about?

Is it similar to the S & R zones or is there a different dynamic at play?

Quote from dbphoenix:

Who said this?

In the attachment: Both charts reach the same height.

Chart (1) has had more of a slog with zones of consolidation and minor retracements.
Chart (2) shows the same height but has had a relatively clean run with little resistance.

Both have now reversed and there is an opportunity for a retracement entry in both scenarios.

I could think about this in two ways:

1) Chart (2) presents a better option to go short because the clean run to the top shows that there may not be many buyers that the price will have to go through on the way down.

2) Chart (2) is not the better option because it's clean run to the top shows that the uptrend was strong - caused not just by a lack of supply, but also by a surge in demand. Thus, the likelihood of the reversal gaining much ground are lower.

How would you look at this?

 

[dbphoenix]

Quote from game:How would you look at this?

You're probably going to want to study the Auction Markets thread, or at least the beginning of it (like all other threads, the redundancy begins at around post 50, or earlier, because few people read from the beginning).

But, in a nutshell, the fewer trades transacted at any given level, the easier it is for price to pass through that level. That's why parabolic moves reverse so easily. That's also why lengthy and busy trading ranges provide more S&R than ranges that are brief and uneventful.

Therefore, the second would be more likely to lead to a "clean" reversal. However, you never really know, so you have to take both.

 

[dbphoenix]

Quote from game:Summary:

Trade 1: Price broke the last swing high after entry but then stalled. I like to see price take off once it crosses previous high so exited as price came back down towards entry.

Trade 2: Same as trade 1 in that the trade worked upon entry but then price stalled and started to come back.

There is probably a difference between giving a trade time because it does not immediately work upon entry versus giving a trade time even though it works in the beginning but is now at or below entry price.

In the second case, price is meeting a barrier 'after' having exhibited clear movement - thereby nullifying the logic of the trade - while in the first case the conditions that led to making the entry may still stand.

If you need the extra confirmation, go ahead and wait for it. However, the longer you wait, the more likely you are to get stopped out. The less risky in terms of price risk is the earlier one, the 0835 entry on the first long, 0849 on the first short, 0859 on the second long, and 0905 on the second short.

As for the second long, if you didn't take it, you may be glad you didn't since it got stopped out immediately. However, this is encouraging the wrong behavior. You must take every qualifying trade, even though they won't all be winners. Trade correctly and the money will take care of itself.

And as for trading in real time, understand that your results are peculiar to this market environment. Go ahead and trade it if you like, but trade replay as well since a different market environment will yield very different opportunities and revenues. At the moment, major averages, including the NQ, are testing or busting through their trend channels. EVERYBODY sees this, from the trader using a 1t chart to the trader using a weekly chart. These billions of eyes all looking at the same thing put a severe damper on volatility, at least intraday (and I assume you don't trade 24/5). If you want something that's more fun, go back to March or April. Or last fall.