Making of a method

[dbphoenix]

Quote from game:

On the first short: Price had not only crossed the DS Line indicating trend break, but also plunged down close to the start of the previous wave. In hindsight taking the short two bars later would have been a better entry but at the time I did not know that price would go back up to make a deeper retracement crest.

Was this trade incorrect because there was not a clear downside trend established yet?


Similar issue with the second long. At the time I did not know price is going to keep going down to form a deeper trough.

What is the mistake being made in these two trades?

Regd the exit: By the line you are referring to the DS line.

But is there any thought process applied to trades which are still around the entry level or below? Can one apply a similar horizontal line at the retracement crest/trough to act as a reference for an exit? I feel you will say that it depends on how price is behaving around the entry.

The short entry should be below the bar since you have no way of knowing how high the retracement will be. The long entry should be above the bar since you have no way of knowing how low the retracement will be.

As for the exit, don't think about it; just do it. You need to rack up some successes. The thinking can come later.

 

[game]

Quote from dbphoenix:

The short entry should be below the bar since you have no way of knowing how high the retracement will be. The long entry should be above the bar since you have no way of knowing how low the retracement will be.

As for the exit, don't think about it; just do it. You need to rack up some successes. The thinking can come later.

I am lost. Above and below which bar? What does a bar have to do with any of this?

 

[dbphoenix]

Quote from game:

I am lost. Above and below which bar? What does a bar have to do with any of this?

If I'm reading your chart correctly, you're entering your short in the middle of the bar. The entry should be below that bar. If it had been, the short would not have been triggered. Nor would it have been triggered by the following bar. It would not have been triggered until two bars later.

 

[game]

Quote from dbphoenix:

If I'm reading your chart correctly, you're entering your short in the middle of the bar. The entry should be below that bar. If it had been, the short would not have been triggered. Nor would it have been triggered by the following bar. It would not have been triggered until two bars later.

Yes I am entering it in what appears to be the middle because I am not relying on bar close to time setting the entry stop. I am making the decision by watching the tick line chart.

If I had waited for the bar to close, then yes I see what you are saying - but then what about entries like the last long?

It too was made in the middle of the bar. But it could have gone either way and the retracement could have dipped further, making this entry too early as well.

I guess I am not clear on the timing of the retracement entry vis a vis bar close.

 

[dbphoenix]

Quote from game:

Yes I am entering it in what appears to be the middle because I am not relying on bar close to time setting the entry stop. I am making the decision by watching the tick line chart.

If I had waited for the bar to close, then yes I see what you are saying - but then what about entries like the last long?

It too was made in the middle of the bar. But it could have gone either way and the retracement could have dipped further, making this entry too early as well.

I guess I am not clear on the timing of the retracement entry vis a vis bar close.

If you're making your entries off a tick line chart, then that's what you should be posting. Otherwise your entries seem like shots in the dark.

 

[game]

Quote from dbphoenix:

If you're making your entries off a tick line chart, then that's what you should be posting. Otherwise your entries seem like shots in the dark.

This is the first short on the tick.


If I was using just the min chart - then are you saying that giving the bar time to close is a good proxy for determining the set up as then the entry would be below that bar's low for a short trade?

Edit: The entry should have been in red color. But this was a short.

2nd Edit: The text on the chart should say "I take it as a sign that it is not likely to go "HIGHER".

 

[dbphoenix]

Quote from game:

This is the first short on the tick.


If I was using just the min chart - then are you saying that giving the bar time to close is a good proxy for determining the set up as then the entry would be below that bar's low for a short trade?

Edit: The entry should have been in red color. But this was a short.

2nd Edit: The text on the chart should say "I take it as a sign that it is not likely to go "HIGHER".

First, if you're going to use a tick chart, use a 1t, not 30. Otherwise your line will be off, whether it's a line of the close or the high or whatever. Just zoom out off the 1t to get a line.

Second, determine the "maximum adverse excursion" of the countermoves. For example, from the point at which you've drawn an arrow, price then drops two ticks. If you had placed your short entry four ticks away from your "retracement high", it would not have been triggered. The first downmove that is more than two ticks is the move off 71. If you had entered four ticks off that, at 70, you'd be short. If that works for you, fine. If the following upmove into a lower high would freak you out, then your short entry would have to be more than two points off the peak at 71, say ten ticks. This would put you in off the lower high at 68.25, which is more or less where you'd be in using a 1m bar chart.

What you have to do is characterize your market. How does it move? How far below these little pullbacks do you have to place your entry so that you don't get sucked into a retracement that has not yet reached its peak?

 

[game]

Quote from dbphoenix:
What you have to do is characterize your market. How does it move? How far below these little pullbacks do you have to place your entry so that you don't get sucked into a retracement that has not yet reached its peak? [/B]

The permanent temptation of life is to confuse dreams with reality. The permanent defeat of life comes when dreams are surrendered to reality.
- James Michener


That is the next major task then - getting a feel for the chop within the retracement. One can follow the trend and even enter in a retracement zone, but it is the awareness of the chop within the retracement that differentiates a -2 point day from a 8 point day.


In trying to get in sync with NQ, I know there will be times when I am expecting the pullback to continue but it turns out being shallow and fast, running away from me back towards the trend.

I will slow it down a bit and if the trade runs away then so be it. I know with practice I will get better at sensing the extent of the counter moves. But in addition to practice through replay I also need to do some extra side research on determining the character of moves in the NQ. I need to design a process for observing the retracement just as there is a process for observing the trend.

You had suggested Steve46's threads on TL. Time to check that out.

This was very helpful stuff today. It has been fun so far.

 

[dbphoenix]

Quote from game:

That is the next major task then - getting a feel for the chop within the retracement. One can follow the trend and even enter in a retracement zone, but it is the awareness of the chop within the retracement that differentiates a -2 point day from a 8 point day.

On the other hand, the major task may be finding ways to avoid the chop. Otherwise you will be trading retracements of retracements of retracements. Lots of small losses and very few wins and small chance of hanging on for the long swings.

A 1t chart is fine for developing an understanding of the continuity of price, which in turn transforms the way one views any other chart. However, it is virtually useless for any type of trading other than scalping. It is unlikely, for example, that you would be in the current 200pt move in the NQ.

 

[game]

Quote from dbphoenix:

On the other hand, the major task may be finding ways to avoid the chop. Otherwise you will be trading retracements of retracements of retracements. Lots of small losses and very few wins and small chance of hanging on for the long swings.

A 1t chart is fine for developing an understanding of the continuity of price, which in turn transforms the way one views any other chart. However, it is virtually useless for any type of trading other than scalping. It is unlikely, for example, that you would be in the current 200pt move in the NQ.

I was using chop as a synonym for "max adverse excursion". It's been fun using the word "chop". The way it rolls - makes me feel wall street like. Although max adverse excursion sounds pretty military too. I hope I am not mixing the two up.

I was wondering if in addition to your generous contributions, you have ever written a 'letter to my younger self' sort of post?