Making of a method

I reviewed the trades again in order to define them in general terms to see if any big 'principle' error was made.

Trade 1 & 2: Shorts were off R. Prior buying wave had met R. So these were both Reversal trades.

Trade 3: Went long off what I thought was S. Sought to replicate the prior two trades based on my thinking that price had reaches S of the range and was now due back into the range.

Trade 4: Now this one is shaky. There was no S/R nearby and I was just going for a long shot trade via a reversal of the trend.

Trade 5: I asked you a question about this in the earlier post.

Trade 6: This looks like trading in chop. I was thinking trend when it was clear that there was strong S a few points below. So bet on reversal here was incorrect.

Trade 7: This was a BO of S in the direction of the trend. But it was the first break from the hinge so I should have waitied.

Trade 8: Based on second break of the hinge in the reverse direction. I thought this was probably the best entry of the day, even though I exited before the eventual move. Since during the exit, price was still at S/R boundary, I could have given it more room. But I was influenced by the string of losing trades and thought...here comes the chop again.


In the TL forum's I have been reading:

The best entries are made off support or resistance. Entries made within a range or long after a trend has reversed are much more problematic. If one wants to take them anyway, no one can stop him. But, yes, that's outside the boundaries of this particular approach.

Db


So I was trying to review my trades from the standpoint of whether they fall at the boundaries of major S/R zones. I learnt today about the LH and HL indicating the presence of chop. But the chop that got me today was what happened after the swing to the low of 2854 reversed and ranged before turning down again.
 
Quote from game:

Does your "LH = STOP" mean that you will watch that zone carefully as it may be indicative of coming chop?

I am seeing your 2 longs here as reversals and 2 shorts as continuations. Is this accurate?

Not exactly. They're all reversals. However, the shorts are the first available retracements after price has left the chop.

That second short is looking like a continuation breakout.

Regd the logic question: It was for Trade 5. Trade 4 was a failed reversal entry. Price changed direction and continued in direction of down trend - the 9:07 bar.

At this point, I closed my long bet on the reversal and took a short based on continuation of trend. Was this logic sound? Would it have been a better bet to wait to for the price to atleast cross prior low before validating the continuation? Based on the shorts in your chart it seems you would have waited for the price to reach the swing low before taking a short.

I really can't tell you what you should have done because your choices will depend on your own testing and how that jibes with your preferences and your risk tolerance and so forth. I trade by waiting for price to break either the support line or resistance line. Sometimes I'll exit immediately and sometimes I'll give it a minute or two depending on how active traders are. Similarly I will sometimes enter the other side immediately after a line is broken if the line runs straight through a retracement, but I prefer to wait for a retracement that occurs after the line is broken. Again, this is the kind of thing that can be determined only in real time (and if you're wondering why I don't just jump in after the line is broken, that hasn't worked for me; my win rate and profit % are better if I wait). The big advantage of this approach is that one can take the risk, knowing that if he's wrong, he can exit immediately with little or no loss (and by "loss" I mean a couple of ticks).

In general - Why am I taking 8 trades vs your 4? I know you don't know what I was thinking in real time - but I am asking more along the lines of common beginner mistakes and thinking.

I suppose because you have not yet clearly defined the conditions for entry. If the entry requires a precise definition of "retracement", for example, then you have to have that, and that will take time, particularly if you're used to trading bars rather than behavior. Remember that the bars are just manifestations of behavior, like facial expressions and body language. They are not the behavior itself.

Edit: I meant to say Trade 4 was an entry betting on a reversal that failed.

Edit: OK. Read that again. STOP = Stop trading.
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Quote from game:

In the TL forum's I have been reading:

The best entries are made off support or resistance. Entries made within a range or long after a trend has reversed are much more problematic. If one wants to take them anyway, no one can stop him. But, yes, that's outside the boundaries of this particular approach.

Db

True, as far as it goes. But the only support or resistance you may have to work with will be at the open. During the trading session, you may have to be satisfied with the tentative S/R provided by double tops and bottoms and swing points, and those can turn on you. You noted several of these and I added one later in the chart.

So I was trying to review my trades from the standpoint of whether they fall at the boundaries of major S/R zones. I learnt today about the LH and HL indicating the presence of chop. But the chop that got me today was what happened after the swing to the low of 2854 reversed and ranged before turning down again.

As soon as you have two losing trades and/or a HL and a LH, stop and reassess. There are plenty of trades, and you aren't going to go broke by waiting until the market tells you what it wants to do.

And since you moved directly from observation to jumping in at the deep end, you may want to consider taking only the most obvious trades, the trades that only an idiot would miss. This alone will likely cut your trades in half, at least.
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Quote from dbphoenix:

I really can't tell you what you should have done because your choices will depend on your own testing and how that jibes with your preferences and your risk tolerance and so forth. I trade by waiting for price to break either the support line or resistance line. Sometimes I'll exit immediately and sometimes I'll give it a minute or two depending on how active traders are. Similarly I will sometimes enter the other side immediately after a line is broken if the line runs straight through a retracement, but I prefer to wait for a retracement that occurs after the line is broken. Again, this is the kind of thing that can be determined only in real time (and if you're wondering why I don't just jump in after the line is broken, that hasn't worked for me; my win rate and profit % are better if I wait). The big advantage of this approach is that one can take the risk, knowing that if he's wrong, he can exit immediately with little or no loss (and by "loss" I mean a couple of ticks).



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That was very helpful of you to point me towards a high expected value entry. But I am unsure of what you were describing. I am laying out a hypothetical example and asking you to confirm whether I am understanding it correctly.

Example:

Say price has just broken S after a bit of ranging and is in a downtrend. The selling wave stops and a retracement starts. Price kicks around forming a mini range within the retracement. This mini range now becomes the S/R to focus on. Now, if price goes up breaking through R, then a long position can be taken for a "reversal' trade.

But the odds are better of waiting for the thrust to retrace back into the mini channel (which is itself within the retracement of the downward trend) and yet take a long position, even though price has shown temporary downward pressure back into the channel?
 
Quote from game:

That was very helpful of you to point me towards a high expected value entry. But I am unsure of what you were describing. I am laying out a hypothetical example and asking you to confirm whether I am understanding it correctly.

Example:

Say price has just broken S after a bit of ranging and is in a downtrend. The selling wave stops and a retracement starts. Price kicks around forming a mini range within the retracement. This mini range now becomes the S/R to focus on. Now, if price goes up breaking through R, then a long position can be taken for a "reversal' trade.

But the odds are better of waiting for the thrust to retrace back into the mini channel (which is itself within the retracement of the downward trend) and yet take a long position, even though price has shown temporary downward pressure back into the channel?
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If the selling wave stops and reverses to the extent of breaking the resistance line, you already have your reversal. You then wait for this to retrace a bit, then place your buystop just above this point. If the reversal continues, you're stopped in. If the reversal fails and price makes a second leg down, you're not stopped in (unless for some reason you bracketed the trade) and can reassess this new situation.

First, this is more aggressive than the practice of waiting for price to break past the swing point created by a retracement, but that particular entry is the weakest of the options available.

Second, if price shows "temporary downward pressure", that is not necessarily weakness, depending on how far it goes (it should not retrace more than 50% of the immediately preceding, in this case, upswing). There are many reasons for a reversal, including short-covering, but if all the reasons for the reversal are weak, it will fail, and so will your long entry. That's one reason why the buystop should be above, not at what you think is, the bottom of the retracement. You want to see serious buyers come in and propel you forward. If they don't, you don't want to be in the trade.

You very likely learned the wrong psychology about all this from somebody and that will take a while to correct. Just keep thinking about trader motives and rid yourself of the notion that the market is out to trick you. There are no multiple levels of double and triple and quadruple cross. It's really all pretty straight-forward. The key question is why price goes up and down.
 
Quote from dbphoenix:

If the selling wave stops and reverses to the extent of breaking the resistance line, you already have your reversal. You then wait for this to retrace a bit, then place your buystop just above this point. If the reversal continues, you're stopped in. If the reversal fails and price makes a second leg down, you're not stopped in (unless for some reason you bracketed the trade) and can reassess this new situation.

First, this is more aggressive than the practice of waiting for price to break past the swing point created by a retracement, but that particular entry is the weakest of the options available.

Second, if price shows "temporary downward pressure", that is not necessarily weakness, depending on how far it goes (it should not retrace more than 50% of the immediately preceding, in this case, upswing). There are many reasons for a reversal, including short-covering, but if all the reasons for the reversal are weak, it will fail, and so will your long entry. That's one reason why the buystop should be above, not at what you think is, the bottom of the retracement. You want to see serious buyers come in and propel you forward. If they don't, you don't want to be in the trade.

You very likely learned the wrong psychology about all this from somebody and that will take a while to correct. Just keep thinking about trader motives and rid yourself of the notion that the market is out to trick you. There are no multiple levels of double and triple and quadruple cross. It's really all pretty straight-forward. The key question is why price goes up and down.
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Could I encapsulate this above approach in the following way for a downtrend situation.

1) Wait for a retracement that crosses a R line (created by last swing high, etc). The retracement needs to be defined, otherwise it could just be an ordinary pullback.

2) Wait for the retracement (small r) of this retracement (big R). The small retracement needs to be defined, otherwise the retracement could be turning into a continuation/range.

3) Place buy stop away from the small r, in direction of reversal. But not at preceding swing high or above it.

Is this accurate?
 
I am jumping in before your reply because I wanted to use the recent entries you made on the 4/30 chart to redefine my question.

On the 1st short:

1) There was a downtrend from 8:53 on wards that then swing back up. Price starts to retrace forming a swing low at 8:56.

2) Now if price crossed some R level during the creation of the Swing low, then the game is on in terms of taking a trade at boundaries.

3) Price moves up from swing low. Assuming this upward move qualifies within my definition of retracement, I place a buy stop a little above currrent price, but below swing low.

4) Price never moves down. So no buy stop is hit. But in this case you have bracketted the trade and your sell stop is hit leading to the short position.

Sorry for the rapid fire questions today. I feel that this is a crucial thing you have shared and just wanted to make sure I am understanding the mechanics. I have to of course understand the principles to tailor entries to my unique risk profile, etc.
 
Quote from game:

Could I encapsulate this above approach in the following way for a downtrend situation.

1) Wait for a retracement that crosses a R line (created by last swing high, etc). The retracement needs to be defined, otherwise it could just be an ordinary pullback.

2) Wait for the retracement (small r) of this retracement (big R). The small retracement needs to be defined, otherwise the retracement could be turning into a continuation/range.

3) Place buy stop away from the small r, in direction of reversal. But not at preceding swing high or above it.

Is this accurate?
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You're getting reversals and retracements mixed up. Price is heading south and for some reason turns north. Maybe it hit S of some sort, or maybe sellers are just tired, or maybe sellers got what they wanted and are done. Whatever. But once price has turned north, you very likely have a reversal, more likely if it did this at S. If it breaks the resistance line that tracked price downward, the odds are even greater that you've got a reversal.

But at some point, price is going to turn south again. This may end up being a continuation south or it may be a retracement. If buyers rush in to support the price, you've most likely got a retracement. This may be a higher low or a double bottom. Unfortunately, it may also be a slightly lower low. You'll see this once in a while, and as long as you are prepared for the possibility, it won't freak you out.

But more often than you'd expect, it all runs like clockwork. Price reverses, breaks the resistance line, continues north a bit, retraces a little but nowhere near the old resistance line (unless it tests the reversal point), then continues north, enabling you to draw a support line and play the long side.

You, however, are already out of your short, so, in a larger sense, you really don't care what it does. If it pulls out of the retracement, your buystop is above the trough of the retracement, so you can't go long unless and until price takes you there. If the retracement turns into a test of the reversal low, you use a followbuystop to force the market into triggering your long in case the test is successful and price heads north again (if it doesn't, you're never stopped in). If the test is not successful and price starts heading south again, then you wait for the first retracement of the new downswing and go short, which is where the macro support comes in, whether from premkt or the previous day or wherever the nearest important previous trading range might be.

Whether you call it a retracement or a pullback is not important. But when you start getting into retracements of retracements of retracements, you are very likely entering into a territory where traders don't have the least idea what they want to do, and price is as random as it's going to get. And if they don't know what they want to do, then you don't either. So if you find yourself getting into retracements of retracements, back away and let them decide if they're going to create a tradeable range or if they're going to trend. Once they decide, you're more likely to know what to do.

Having brought up trading ranges, I should mention that TRs are an exception to this retracement business. If you're going to trade TRs at all, you really can't wait for retracement confirmations of the direction. Unless the TR is pretty wide, there's no time. By the time the retracement occurs, if any, you're probably almost to the opposite of the range. So when you hit the top or the bottom, you have to be ready to stop and reverse and forget about retracements. If you're not comfortable with that, then just relax and watch them play. When price finally exits the range, you'll have a trend to trade.
 
Quote from game:

I am jumping in before your reply because I wanted to use the recent entries you made on the 4/30 chart to redefine my question.

On the 1st short:

1) There was a downtrend from 8:53 on wards that then swing back up. Price starts to retrace forming a swing low at 8:56.

2) Now if price crossed some R level during the creation of the Swing low, then the game is on in terms of taking a trade at boundaries.

3) Price moves up from swing low. Assuming this upward move qualifies within my definition of retracement, I place a buy stop a little above currrent price, but below swing low.

4) Price never moves down. So no buy stop is hit. But in this case you have bracketted the trade and your sell stop is hit leading to the short position.

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You're probably going to have to find a better example or wait for one because there is no scenario justifying a long during that timeframe. If price were to "reverse" after exiting that trading range and head north again, it would be dragging you right back into that range, and that's not where you want to be.
 
Quote from dbphoenix:

You're getting reversals and retracements mixed up. Price is heading south and for some reason turns north. Maybe it hit S of some sort, or maybe sellers are just tired, or maybe sellers got what they wanted and are done. Whatever. But once price has turned north, you very likely have a reversal, more likely if it did this at S. If it breaks the resistance line that tracked price downward, the odds are even greater that you've got a reversal.
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Definitely a definition issue. That was throwing me off. I was calling the first upswing as a retracement. I am surprised it is called a reversal because I thought a reversal only takes place once trend has reversed with "confirmation". Anything else is just a retracement/pullback.

So when today you mentioned that all 4 of your trades would have been reversals - I get confused because, the 1st short is in the direction of the initial down move. So why are you calling it a reversal?
 
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