Making of a method

[game]

Quote from dbphoenix:

If you're asking me, I'm reluctant to jump in here because there is value in your involving yourself in your own explorations without outside interference. Plus I traded this. Once you've done several of these, you may want to look at what I did for an alternate perspective. But if you do it too soon, you may end up trying to do what I do, which would not be good.

Consider also trading only during those periods when traders are most active. For the NQ, this tends to be from the open or just before to 1100EST or 1130, rarely 1200. Once activity dies, you may as well hang it up for the day. You aren't going to get any important moves if nobody's there.
[/B][/QUOTE]

That sounds nice - not being in front of the screen for 6 hrs straight. Do you trade other markets once your NQ window is done?



Finally, if all of this is replay, consider running it at no more than 2x. This can get extraordinarily boring, particularly once you have it down, and 90m can seem like forever, much less two or three hours (and if you run it at more than 2x, you may get the impression that it's a lot more exciting than it really is). And if you're bored, you're far more likely to make mistakes. I can rarely trade for more than 90m unless price has settled into a trend and I don't have to do anything about it other than monitor it casually.

[/B][/QUOTE]

I was playing it at 6x. But if market is active for only 2 hrs from open, then I could a run a simulation each day at regular speed.



And I strongly suggest you get rid of the colors. [/B][/QUOTE]

You mean the colors of the bars right - red & green? What is the reason behind this?

 

[dbphoenix]

Quote from game: Do you trade other markets once your NQ window is done?

No. I don't love it that much. I can love it for 90m. After that it's mostly something to endure.

In any case, it's not about how much time you spend trading or how many trades you make, it's about size. The more you trade, the more likely you will do poorly.

Wait for the first-class jewels, Gigi. Then make the most of the opportunity when it presents itself.

You mean the colors of the bars right - red & green? What is the reason behind this?

They can mislead. You can tell up from down without color cues, so keep your trading space as free from clutter as possible.

 

[game]

"When a stream breaks through a dam it goes into new territory. Likewise the breaking through of a stock is significant, because it means that the resistance has been overcome.

The stronger the resistance, the less likelihood of finding further obstacles in the immediate vicinity. Dams are not usually built one behind the other. So when we find a stock emerging into a new field it is best to go with it, especially if, in breaking through it, it carries the rest of the market along."


"Successful tape reading is a study of FORCE. It requires the ability to judge which side has the greatest pulling power and one must have the courage to go with that side. There are critical points which occur in each swing, just as in the life of a business or individual.

At these junctures it seems as though a feather's weight on either side would determine the immediate critical trend. Any one who can spot these points has much to win and little to lose, for he can always play with a stop placed close behind the turning point or "point of resistance".

Richard Wyckoff

These lines resonate with me. I like 5:1 bets with high ev. I gravitate towards options because of this. But doing the fundamental research to locate 5:1 bets has been a slog. It's tough to find the next CDS housing bet when I don't have any expertise in the specific industry or industry network.

But I might not have to. The structure of markets and minds may provide me these opportunities everyday in deep liquid markets.

My goal then is to locate these tipping points/critical points/points of no return. The smallest tremor starts an avalanche but all tremors cannot possibly be tracked. It is better to keep track of where 'criticality' is rising, where potential is being built.

Big bets, on well defined critical states with a mental stop loss based on the logic of the trade.


Focus on the S & R. How does one determine the quality of S&R. That will determine the extent of the breakthrough.

 

[game]

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.
-Unknown

5 trades in 90 mins.

Approx points

Trade 1: +3
Trade 2: - 5
Trade 3: -1
Trade 4: +5
Trade 5: -1
Net: +1 w/o commissions


The loss on trade 2 was a good example of how fast and strong price can move once resistance has been overcome. Buyers were reaching for ask. A worst case scenario hard stop at around 2751 would have saved me 2 points.

Froze a little bit after the big spikes over 2 frames that traversed the entire range. Was in mean revert mode so took some time to see that there was steady buying pressure. Took a few frames to get some confidence in buyers, so took trade 4 once price reached S.

Tried to apply lesson of trade 2 to trade 5, when days's high was broken with some depth.

Something to think about for tomorrow:

1) implement worst case hard stops to protect against runaway prices.

2) study past few weeks of NQ and get acquainted

3) continue seeking trades at boundaries.

4) be more flexible in changing outlook from sell to buy or vice
versa.

5) Notice whether: If pressure is about even and price breaks S/R, does the extent of the first foray tip one to the possibility and extent of eventual price break. Otherwise it would be a shakeout.

 

[dbphoenix]

Your short at 5 is inappropriate given the preceding higher low. Don't become so distracted by S/R lines and volume that you forget to look at what traders are doing.

Don't move stops. If price isn't doing what you expect it to do, just get out. Moving stops means that (a) you're not really clear on what you're looking at and (b) you haven't dealt with your fear, the two being connected.

And if you're going to trade this much, you're going to have to use a smaller bar interval. You can't trade what you can't see, and you can't see what price is doing with a 5m bar. At the very least create a 1m line chart and let it run alongside your 5m chart.

 

[game]

Quote from dbphoenix:

Your short at 5 is inappropriate given the preceding higher low. Don't become so distracted by S/R lines and volume that you forget to look at what traders are doing.

Don't move stops. If price isn't doing what you expect it to do, just get out. Moving stops means that (a) you're not really clear on what you're looking at and (b) you haven't dealt with your fear, the two being connected.

And if you're going to trade this much, you're going to have to use a smaller bar interval. You can't trade what you can't see, and you can't see what price is doing with a 5m bar. At the very least create a 1m line chart and let it run alongside your 5m chart.

Definitely looks inappropriate now, especially against the 1 min line. Besides higher low, range was compressing towards R.


Regd moving stops. So for example when I place a buy:

1) I have bought after seeing certain information and filtering it through the logic of my method. Ex: filtering price and volume information through my ideas about buying pressure, S/R etc.

2) So now price travels up

3) Say price goes up 3 points. Now I have two options. I can assess whether the conditions that led to me buying in the first place still hold - if not in degree then at least in kind - ex: buying pressure still exists. In this case, I choose to not sell because the logic of the trade holds.

4) The other option is moving stops because I do not know how to form a reliable opinion about future movement at this current moment. In this case, I have to rely on risk/reward. If I risked 1 and I have 3 points in, then I decide to move the stop to capture a good R.

5) The first option is the tougher one and obviously requires more skill.

All this is assuming that there are no initial price targets when taking a trade because that goes against the principle of taking action based on the current reality.

 

[game]

Quote from game:

Definitely looks inappropriate now, especially against the 1 min line. Besides higher low, range was compressing towards R.


Regd moving stops. So for example when I place a buy:

1) I have bought after seeing certain information and filtering it through the logic of my method. Ex: filtering price and volume information through my ideas about buying pressure, S/R etc.

2) So now price travels up

3) Say price goes up 3 points. Now I have two options. I can assess whether the conditions that led to me buying in the first place still hold - if not in degree then at least in kind - ex: buying pressure still exists. In this case, I choose to not sell because the logic of the trade holds.

4) The other option is moving stops because I do not know how to form a reliable opinion about future movement at this current moment. In this case, I have to rely on risk/reward. If I risked 1 and I have 3 points in, then I decide to move the stop to capture a good R.

5) The first option is the tougher one and obviously requires more skill.

All this is assuming that there are no initial price targets when taking a trade because that goes against the principle of taking action based on the current reality.

An additional point:

In the case of point 3 above. If my trade moves up 3 points. To decide whether to hold on to the trade, I have to assess it if the p of getting 3 more points more (for example) is worth risking 4 points for (1 point of stop loss + 3 of gain).

 

[game]

I got this message below as a pm. After asking the pm'er for permission, it is being posted and replied to here since I wanted to reflect and write on the questions being asked as part of my continuing journal.

Quote


wrote on 04-23-13 11:58 AM:
Greetings G,

Thanks for the rundown on your progress.

Ive been lurking, tuning in or your thread from time to time. From looking at your chart, it would be a bit easier to make comments, if you could label your entrys and exits (ie T1Buy, T1Sell, T2Buy, T2Sell...etc), and include the reason for the trade, and the exit.

The reason for the trade is of course as delineated in your Trading Plan. Then we could see and comment on "your" consistency and discipline, in light of the efficacy of your methodology.

In other words, since your Setups employ; "The use of simple horizontal patterns as timing signals".

What horizontal patterns are you referencing here, and how did you go about codifying these into a comprehensive strategy in your Trading Plan?

Thanks for the candid look into your trades.




Game,

I’m having difficulty understanding the philosophy behind a statement that you made in you last PM. You stated:

“I have not found an edge and am in the process of researching. There is no set methodology as of yet. Just trying to incorporate certain principles of price action and experimenting with simulation. I hope to formalize the method in the future - but that could take anywhere from a few weeks to months.

My question to you is; how are you able to execute trades in the market, Simulation or Live, without first having codified “what you’re doing”, or what your “Trading Principles” are, in some formalized written set of conditions? Because in my mind, if it isn’t written…its always adjustable. And to my way of thinking, I believe that this is not the way to create consistency, or engender discipline.

How are you currently building a foundation for a solid trading methodology without first having carefully laid out “Blueprints” for its construction?

And in future, how do you go about “formalizing” something that is not defined in basic executable steps, terms, and language?

I’ve not seen this type of approach before, and I’m curious as to how you effectively operate this way.


End quote



I have not codified rules or trading principles because I do not want to codify something I do not understand.

My last day trading experience was on paper and lasted about 3 months where I used someone else's color coded rules on 15 min bars for earnings announcement stocks. My exposure to both day trading and TA is very limited.

So at this point, I am not paper trading to optimize or even validate/reject a method. I am just playing in the sandbox - and while I first thought I would just observe and narrow down on certain behaviors, I am finding that observing within a loose paper trading template is allowing me to observe with intention. Playing some futsal before the soccer.

The method is amorphous because there is no method per se except a boundary which is taking shape as I read, observe and incorporate the feedback of generous folk like you.

I intend to form a codified method before formal backtesting.
I look forward to your feedback for improvement.

 

[dbphoenix]

Quote from game:



3) Say price goes up 3 points. Now I have two options. I can assess whether the conditions that led to me buying in the first place still hold - if not in degree then at least in kind - ex: buying pressure still exists. In this case, I choose to not sell because the logic of the trade holds.

4) The other option is moving stops because I do not know how to form a reliable opinion about future movement at this current moment. In this case, I have to rely on risk/reward. If I risked 1 and I have 3 points in, then I decide to move the stop to capture a good R.

Future movement is not your concern. Is price doing what you expected it to do or not? If it is, leave it alone until it demonstrates unequivocally that it has stopped doing what you expected it to do and/or decides to do something else. If, for example, price hasn't broken its stride, there's no reason to sell. If it has, there's no reason not to. This does not preclude re-entering if price decides to resume its movement after all, but most people find it easier to assess a situation from a bystander's viewpoint than if they are in the middle of it and wondering if they're doing the right or wrong thing.

As for moving stops, doing so means that you're relinquishing control over your own trade and giving the market the responsibility. The market's not responsible, you are. By handing off the responsibility you are saying more or less that you want out. If you want out, then get out. Otherwise, leave your stop where it was and monitor the situation. If the situation turns ugly, exit. Where the stop is or isn't is irrelevant.

Don't concern yourself with points and ticks. Concern yourself with trading well.

 

[game]

/23/13

Trade 1: -1
Trade 2: -.75
Trade 3: -1
Trade 4: -1.25
Net: -4

Start: 8:08 a.m.

Trade 1 @ 8:19

Buy at 2786.25
Stop at 2785.25

Price breaks resistance on the 1 min range. Possible move to the Resistance of the 5 min range. Angle of ascent is steep indicating strong buying power. Stop based on prior retracement level on tick chart.

Stopped out at 8:20


Trade 2 @ 8:23

Sell at 2786.25
Stop at 2787

Reverse of trade 1. Selling from resistance. Tick chart seeming to make a double top.
Stopped out at 8:23

Trade 3 @ 8:26

Sell at 2786.25
Stop at 2787.25

Trying again as trade 2. 1 min showing HH’s and LL’s - topping.

Stopped at 8:27


Thought: When price moves towards support, it often does so in a trend with LH and LL. But buying at support will then mean a trend reversal. While selling at support will mean a continuation of a trend.

So where are the greater oddS? Besides initiating trades at S & R, I need a concept to help me decide whether to buy at S/R or sell. Otherwise I will trade too often at these zones due to getting stopped.

Or I could just wait a little longer and let time elapse. If there is congestion at S and then price moves up confirming the bounce up, then I buy. If there is congestion at S and then prices moves down then I sell. I would require a rule for of how much time should elapse to give me confirmation of congestion at S/R. Or this rule could be based on watching the behavior of the tick chart ?

If there is no congestion at S/R and the price makes a clean bounce or clean cut, then I can just let the price go away - for now. Unless I develop a better feel.


9:00 a.m. is a good example. Price hit the 5 min R, but there was no significant time spent there. Now, should I have shorted this? Or should I let it go because it’s a relatively clean bounce off the R?


9:25: Price broke down from the hinge on the 1 min and touches support on 5 min. Now I can use the hinge break as a validation that S will not hold - and thus go short. Or I can ignore the hinge and use the S to buy.

Trade 4
@ 9:26
Sell at 2775
Stop at 2776.25

General trend is down. Hinge area above S is pushing price down.
Stopped out at 9:28


Thought: Am I am getting too rigid with S & R lines drawn before the start of trading? Because most of the volume is being done at the open, so in a way S & R zones are being formed as volume increases. I have to look back and see if prior S & R points had enough volume to serve as a useful reference against “present” volume levels.