Making of a method

A fine journal that is going on. Sorry for budging in but just had a couple of questions for Db.

In the example above, you put a buy stop to get you in after the retracement. This is like buying the high once the bars stop falling. But this is like a simple pullback. What happens in case of complex pullback? How does one know if one should put a buy stop or whether the pullback has more legs to it?

Also, say in an uptrend, when a R is broken, you assume that a Trend reversal has happened and then you start looking to short on a retracement by putting sell stop orders below the bars that are coming from the trough. Now if one keeps doing it through the day, what should be a minimum length for one to say that the first Trend line/R got broken and a reversal happened? Even 2 bars with HLs will give an up sloping line.

Do you look at just a single timeframe or some higher timeframe also. I mean if one focuses on just say 1 min timeframe, would that be ok? Is there anything such as noise?

Also, what is btm?

Many Thanks for all that you share.
 
Quote from yossy:

A fine journal that is going on. Sorry for budging in but just had a couple of questions for Db.

In the example above, you put a buy stop to get you in after the retracement. This is like buying the high once the bars stop falling. But this is like a simple pullback. What happens in case of complex pullback? How does one know if one should put a buy stop or whether the pullback has more legs to it?

Also, say in an uptrend, when a R is broken, you assume that a Trend reversal has happened and then you start looking to short on a retracement by putting sell stop orders below the bars that are coming from the trough. Now if one keeps doing it through the day, what should be a minimum length for one to say that the first Trend line/R got broken and a reversal happened? Even 2 bars with HLs will give an up sloping line.

Do you look at just a single timeframe or some higher timeframe also. I mean if one focuses on just say 1 min timeframe, would that be ok? Is there anything such as noise?

Also, what is btm?

Many Thanks for all that you share.
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First, there are no assumptions. Assumptions lead to hope. And hope more often than not fucks you over.

Once the trend begins to sputter, particularly to the extent that it breaks a simple line, I take it for what it is and get out. None of this waiting for price to hit my stop. That relinquishes all control to the market. I prefer to hang onto as much control as I can.

As for buying the high of the pullback, no. Unless the pullback is very shallow, I'm buying inside. Either way, I place my buystop far enough away from the action that I am less likely to be stopped in by a hiccup. This of course depends on the market and the interval (you can't place a buystop one point away from a pullback on a daily chart). The trader has to "characterize" his market and see just how far away from the roiling he has to be not to be faked out. But in any case he has also to be prepared to exit immediately in case he gets faked out anyway. Hope will make this vastly more difficult.

Second, I don't buy off the trough if an uptrend is broken. And, again, I don't assume anything. I wait for the market to tell me. If the line is broken, I watch to see whether price move sideways, resumes its upmove, or reverses into a downmove. If the first, I wait. If the second, I wait for a RET in the upmove (I rarely just jump on something). If the third, I wait for a RET in the downmove. There will nearly always be hesitations when the status quo changes. They don't know what they're going to do so how can I? So I wait to see what they've decided before I act. If it's a good move, I don't need to hurry.

I used to look at at least two intervals, but not any more. But then I've been doing this a long time. Now I get my frame from the daily and then focus on the 1m. A large part of this is because I want to show beginners that they don't have to spend big bucks on platforms and software. One can learn what he needs to know by using free stuff on the internet (that's why the charts I've been posting this past year have all been from free online sources). The timeframe, then, may be weeks, depending on whether or not we're in a trading range, what the relationship of that trading range is to the previous trading range (the NFP report in April, for example, prompted the NQ to drop into the middle of a trading range well below the one we were in, followed by an excellent reversal). But for the actual trading, it's only a day, if I'm daytrading, which I won't be doing any more of until the fall, and the bar interval is only 1m. The simpler, the better. The less you have to look at, the more focused you can be on the task at hand and the more control you have. The more control, the less risk. The less risk, the less fear. And so it goes.

Third, there is no such thing as noise. Every transaction is made for a reason. You may not know what the reason is. And it may not be in the least important. But even a machine has a reason.

There are tons of charts at TL. Way too many. But they're there for anyone who's interested.

P.S. Reading this over, there is one exception to this retracement business. If, for example, price is in an upmove and it hits resistance, I'd rather wait for a retracement before going short. This retracement, if it fails, will constitute a lower high. But if the resistance is solid and price hits it hard, it may very well form a "V" reversal, and there won't be any retracement, except maybe on a 1t chart. On those I may just jump on it. However, if one does that, he has to be prepared to exit immediately if price doesn't do what he though it would do. If it doesn't, there are always the options of trading the retracement after all, or if price continues upward, to buy the first retracement after the new high is made.

Many options, all of which should be anticipated and planned out in advance.
 
“When things are in order, if the cause of the orderliness cannot be deduced from the motion of the elements or from the composition of matter, it is quite possibly a cause possessing a mind.”

Johannes Kepler

Hypothesis:

In all 3 scenarios, point C holds the most information.

Why?

To answer:
Assume point C is midpoint between A & B in all scenarios.
Impose stories of trader behavior on price movement

Chart 1:

Support has been established at B. This means that for the time being, there is more pressure from buyers wishing to buy on the dip than there is from sellers cashing in on the trend.

Point C holds a lot of information because:

1) This is where traders who have not bought and sold yet, will watch for future price movement to confirm their decisions.

If price goes above C, buyers will jump in seeing that the trend is resuming. If price goes below C, sellers who were holding on will get the confirmation that yes the trend is over and they will sell.

Chart 2:

Here price turns down from point C but once again a new support is established though a higher low at point D. By this time, those who had to sell have sold. Traders see this confirmation and start buying in anticipation of trend.


Chart 3: Same as 2 but support is found through a lower low. But there is enough pressure for price to come up back to the C price level again - now denoted by point E.


Point C is the most important place to focus on because it is the tipping point. The movement of price around this point will serve as a confirmation for sellers who are fearful about not losing their profit from the ride up the trend and from buyers who are hopeful of joining into the up trend.

The turning of this point determines the cascade.

If this is true, what is the data that I need to gather?
 

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Quote from dbphoenix:



As for buying the high of the pullback, no. Unless the pullback is very shallow, I'm buying inside. Either way, I place my buystop far enough away from the action that I am less likely to be stopped in by a hiccup. This of course depends on the market and the interval (you can't place a buystop one point away from a pullback on a daily chart). The trader has to "characterize" his market and see just how far away from the roiling he has to be not to be faked out. But in any case he has also to be prepared to exit immediately in case he gets faked out anyway. Hope will make this vastly more difficult.

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So to characterize one's market, the information needed could be:

1) Get the stats on the range of movement inside a retracement. This could be an absolute measure or thought of in % terms of the prior range exhibited by price in creating the trend.

2) Since a Buy stop is being placed to have one propelled into price - What price level indicates likelihood of further propulsion, where once this level is reached, "trend" effects are likely to kick in?


So buy stop should be far enough to avoid getting faked, far enough to take advantage of trend effects, but close enough to manage risk if price moves adversely.

Are there other general areas that one would need to look at when characterizing the market?
 
If this is of interest to you, I suggest you go to TL and do a search using "Steve46", "characterize", and "E-mini Futures Trading Laboratory" and read the half-dozen or so oldest posts.
 
Thanks for your reply Db. Just one thing that I wanted to clarify. When you speak of retracements, are you referring to only those that stay within the Demand/Supply line for putting a Buy/Sell stops? For instance, if there is an uptrend, you look to buy after the retracement as long as long as the retracement does not break the demand line. If it breaks the demand line, then you start to look to short by putting a sell stop once this downward retracement is retraced. Right?
 
Some pretty deep stuff in this thread. For my tuppence worth:-

You have your relevent inputs and think of them as charts probably, in 2D.
If you can expand this to 3D you will have made a quantum jump.
 
Quote from yossy:

Thanks for your reply Db. Just one thing that I wanted to clarify. When you speak of retracements, are you referring to only those that stay within the Demand/Supply line for putting a Buy/Sell stops? For instance, if there is an uptrend, you look to buy after the retracement as long as long as the retracement does not break the demand line. If it breaks the demand line, then you start to look to short by putting a sell stop once this downward retracement is retraced. Right?
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I don't "look" for anything, and the lines are primarily a means of keeping the beginner focused. They also serve to get the trader with fear issues out of the trade and enable him to regain and maintain control over his trading. One can't trade well in a perpetual state of fear. The fear, of course, stems from a lack of a trading plan, but there's nothing I can do about that, other than to decline to work with anybody who doesn't have one. But even a plan isn't going to be a magic solution for someone who's been trading without one. The bad habits and the fear have already taken root.

Therefore, the break of a line can mean a congestion or a reversal or a continuation on a less-severe angle. But it's better to be out of the trade as a dispassionate observer than to sweat bullets over what's going to happen to your trade.

A retracement is simply any move counter to the primary move. If the move is up, a retracement will be a move counter to that. Sometimes it's so brief and shallow one can see it only on a 1m chart. Or even less. Sometimes it's extended enough and deep enough to break the momentum, and whatever assisting line one has drawn, either on the chart or in one's head. But the retracement is merely a prelude. What matters is what happens next.

Most beginners will panic when price stops going their way. They rarely if ever look at it as an opportunity, particularly to add to their position (which is preventively difficult if the market doesn't trend well enough to permit scaling in). But even if the trader has no intention of adding to the position, the reaction to the retracement should be at most neutral.

Unless one is nearing resistance, the odds are that there will be a continuation, and the retracement may be nothing more than some people taking profits, and some more people being rattled by this profit-taking and exiting themselves because they imagine something worse. In any case, if one is not in the trade, he can place his buystop just above this activity so that he's stopped in if and when the continuation occurs. If the continuation stops short of matching the previous high, then he has to be prepared for a double top or a lower high and the possibility of a stop-and-reverse. If he isn't confident enough to do that, then he should exit and see whether price reverses or moves sideways. If it reverses, he can then wait for a retracement further on in the subsequent downmove. If there isn't one, or if there is one and it doesn't go anywhere, then he should exit entirely until traders decide what they want to do and where they want to go.

Trading should be like going to a game where you know nothing about either of the teams and couldn't care less who scores, much less wins. Having a trade on makes this more difficult, but the principle remains. To do otherwise implies trading with the ego, and that state clouds perception and judgement.

Keep in mind also that there is nothing mechanical about this other than what one insists on imposing. Hindsight charts serve only to illustrate principles and guidelines. There are many clues that one can pick up in real-time trading that cannot be seen in hindsight charts, like all the little hesitations that indicate that traders are unsure or are trying to be stealthy about a change in direction.

These lines are not intended to replace one mechanical method with another. They are rather intended to help the trader focus on price movement rather than indicators and patterns. What is even better is getting rid of everything other than price (and volume), but few people can do that unless they have someone sitting next to them explaining what they're looking at and what they might expect. At the very least the lines may help the beginner distinguish between trend and trendlessness and gradually and eventually be able to detect the transitions between the one and the other and how to trade them.
 
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