Making of a method

[dbphoenix]

The stats are fine for providing the what, but they say nothing about the why.

What was your strategy?

What were your tactics, i.e., how did you decide where to enter and where to exit?

Did you review your trades daily?

Did you always trade correctly? If not, why not? If you did not trade correctly, what should you have done differently?

If you conducted these reviews at the end of the trading session, did you incorporate what you learned into the next session? Were you successful in doing so? If not, why not?

All of which may sound like an interrogation, but if you don't go through this process, you won't have learned much from the exercise.

 

[game]

Quote from dbphoenix:

The stats are fine for providing the what, but they say nothing about the why.

What was your strategy?

What were your tactics, i.e., how did you decide where to enter and where to exit?

Did you review your trades daily?

Did you always trade correctly? If not, why not? If you did not trade correctly, what should you have done differently?

If you conducted these reviews at the end of the trading session, did you incorporate what you learned into the next session? Were you successful in doing so? If not, why not?

All of which may sound like an interrogation, but if you don't go through this process, you won't have learned much from the exercise.

Lessons learned:

1) The big realization was that despite the low win rate, many of my trades were placed in the right direction. However, they were losses because I exited too soon.

Towards the last few days of trading, I started giving trades more time by looking at the left and using nearby S/R levels.

Going forward my focus is to stay in the trade unless price does something that invalidates the basic premise of the trade. This will, from time to time, lead to bigger losses as price falls beyond the last line of defense. But on the whole, it will drastically improve the win rate.


2) The other big change needed is to give the winners more room. Exiting winning trades has been the most expensive mistake. Going forward, I plan on using the 50% ret level as a reference point to stay in the trade.

3) Reversals have been expensive, especially when I don't wait for much of a retracement. The plan is to become conservative with the Reversal strategy. The re-test needs to be used to lower both price and information risk. So I will focus on taking Reversals only once a re-test has taken place.

4) The importance of prep work. I am getting more comfortable with identifying likely S/R levels. Getting better at this will improve performance.

5) I am getting acquainted with my loss aversion tendencies which are manifesting through 1) not giving the trade room when it's showing a loss and 2) cutting winners short.

In conclusion:

I feel that a lot of progress has been made over these 20 sessions. The main realization is that once the anticipated direction has been confirmed by the market, I need to lay off and use rules to counteract my loss aversion.

 

[dbphoenix]

The three most important considerations for any trader who seeks to trade price are (1) trend, (2) support and resistance, (3) the imbalances between demand and supply, or buying pressure and selling pressure.

1. In order to determine the trend, one must look back to see where the trend changed and where price lies currently with regard to that trend change, i.e., the context. One may be able to determine this by going back a day or so or he may have to go back months.

2. In order to determine pertinent levels and zones of support and resistance, one must look back to determine where price itself stalled and/or reversed course. This is the message of the market, but one has to listen to it in order to hear it. This also provides context (see the first post to the journal I just started).

3. In order to determine the imbalances between demand and supply and who has the upper hand, one must look at the pace, extent, and duration of buying and selling waves as one applies them against important levels of support and resistance. "Reversals", for example, are nearly always meaningless unless they occur against important support or resistance. If they don't, they are more likely than not to be nothing more than the beginnings of a retracement, and if that retracement does not break the supply/demand line, there's no reason to exit (this is the primary reason why "2Bs" and "123s" and "Ross Hooks" and so forth so often don't work out as advertised).

Judging these imbalances becomes more difficult by several levels of magnitude if one is trying to trade before he has learned to make these judgements with ease. Rather than assessing the imbalances, he's looking for a trade, and if he's trying to learn how to do both at the same time, whatever trade he finds will most likely be the wrong one. It is the trading equivalent of the shortcut that takes many times longer than if one had simply driven the prescribed course that is created to take him to his destination.

If none of this improves your performance to a satisfactory level and you have suspended your trading long enough to become attuned to the behaviors of buyers and sellers by watching price movement without regard to looking for trades, I suggest you either (1) begin following several instruments simultaneously and trading that which appears to be most likely to provide a tradeable opportunity during your upcoming trading session (e.g., it's bouncing off support of some sort) or (2) swingtrade a larger bar interval, such as 60m, which will free you from the one-hour constraint you have and also enable you, generally, to hold your trades overnight.

 

[game]

Quote from dbphoenix:

The three most important considerations for any trader who seeks to trade price are (1) trend, (2) support and resistance, (3) the imbalances between demand and supply, or buying pressure and selling pressure.

1. In order to determine the trend, one must look back to see where the trend changed and where price lies currently with regard to that trend change, i.e., the context. One may be able to determine this by going back a day or so or he may have to go back months.

2. In order to determine pertinent levels and zones of support and resistance, one must look back to determine where price itself stalled and/or reversed course. This is the message of the market, but one has to listen to it in order to hear it. This also provides context (see the first post to the journal I just started).

3. In order to determine the imbalances between demand and supply and who has the upper hand, one must look at the pace, extent, and duration of buying and selling waves as one applies them against important levels of support and resistance. "Reversals", for example, are nearly always meaningless unless they occur against important support or resistance. If they don't, they are more likely than not to be nothing more than the beginnings of a retracement, and if that retracement does not break the supply/demand line, there's no reason to exit (this is the primary reason why "2Bs" and "123s" and "Ross Hooks" and so forth so often don't work out as advertised).

Judging these imbalances becomes more difficult by several levels of magnitude if one is trying to trade before he has learned to make these judgements with ease. Rather than assessing the imbalances, he's looking for a trade, and if he's trying to learn how to do both at the same time, whatever trade he finds will most likely be the wrong one. It is the trading equivalent of the shortcut that takes many times longer than if one had simply driven the prescribed course that is created to take him to his destination.

If none of this improves your performance to a satisfactory level and you have suspended your trading long enough to become attuned to the behaviors of buyers and sellers by watching price movement without regard to looking for trades, I suggest you either (1) begin following several instruments simultaneously and trading that which appears to be most likely to provide a tradeable opportunity during your upcoming trading session (e.g., it's bouncing off support of some sort) or (2) swingtrade a larger bar interval, such as 60m, which will free you from the one-hour constraint you have and also enable you, generally, to hold your trades overnight.

You have often written about the need to go through the observation phase before attempting to trade. I have observed but I cannot claim that I am at a level where these judgments can be made with ease.

However, my experience with just simply observing first was that I could not bring myself to observe with the intention necessary to understand all the nuances behind price action trading.

For example: It is only after having sim traded for these 20 sessions that I am now beginning to see that Reversals cannot be taken at just any level, and that S/R is integral to the success of Reversal trades. But without sim trading a bit, I don't know how I would have seen this simply through passive observation. Yes, observing was very helpful in seeing the wave nature of price movement and it's speed, extent, etc. It's just that I am seeing a lot of value in complementing it simultaneously with sim trading. Reflecting on the stats from this last cycle has given me some insight into trading by price, at least much more than what I had a few weeks back.

I don't want to take shortcuts. So I hope I am not justifying my approach because of stubbornness. I wanted to share the reasoning behind my actions to see if there is something I cannot see.

Thank you very much for everything.

 

[game]

Day 1 of 10

Prep:
Buying pressure since overnight. HL's keep the trend up, even though range is tightening against the R above. Price is slightly above the middle of the channel on the Daily. Bias is slightly up.
S: 2918 (PM)
S: 2912 (ON)
S: 2895

R: 2927 (ON & PM)

Trade 1: The bias was long and took the RET once price crossed the R from premarket. Pace became flat shortly after entering, but gave the trade time since bias was long and price was finding support. After 6 mins, price started showing hints of downward pressure making a LL & LH. I decided to exit because a) Price was showing hints of downside and there had been pressure building up because of the narrow range, indicating that an adverse break below the range could be powerful. I weighed the downside risk against the upside fact that price was still slightly above it's LSL.

Trade 2: Took the first RET after the break from the range. Did not give the 3rd lot much room in the 50% zone as price had made a double top.

http://www.sierrachart.com/image.php?l=1372721367866.png

 

[game]

Prep:
Price rose overnight from yesterday's close but pre-market has driven it back down to the previous Support level of 2920. Although this level has been providing S, the sell off from the highs of the 1st and the sell off from pre-market give me a short bias.

S: 2912 (Swing low from 1st)
S: 2895

R: 2925 (MP of down wave from 31.75 to 18.25)
R: 2934 (from ON & 1st)
R: 2943 (Double top from 1st)

Opening: The downside pressure was stopped by the well tested S level and price explored upside.

0833: I hesitated on the long entry opp here as the R level from PM had not been crossed and I wanted more confirmation.

0843: The trend had been established as long. The congestion was showing S underneath with brief explorations of upside. I saw buyers
bring back the 0843 bar strong and thought long. But hesitated and missed the entry.

0847: Two entry opps had been missed and considering that the upswing was worth 12 points by now, I opted not to take this entry because a) not wanting to chase after missing better entries below b) not wanting to enter a 12 point run

0901: Took the short because a) Tested R zone from the past and recent action was above b) The RET was deep enough to serve as a retest confirmation of weakness.

0905: Exited on DS line break. Did not give trade room because a) This was a Reversal against a strong uptrend for the day

The rest: Did not see any compelling entries because a) There were too many trades in this zone b) Pace had slowed and it was late.

Key point: The strength of the S level from the past could have been taken into consideration in being decisive with the entry at 0833. It's behavior from the past and it's rejection of pressure from the opening could have led me to take the long against the information risk of not having tested PM R.

http://www.sierrachart.com/image.php?l=137280801523.png

 

[game]

Day 3 of 10

Prep:
Price inside and closer to upper boundary of trend channel on the daily. Overnight consolidation dropped sharp 20 points but found S and Premarket exhibited strength and reversed the drop all the way back. This is immediate strength. Price is below the lower boundary of the trend channel on the hourly. So odds are for price to exhibit down bias based on Daily Channel Mean Reversion. The lower high and R at 2940 from yesterday indicates that momentum for the uptrend from the 24th onwards may be changing. Bias is down, although PM exhibited strength. See if this strength is negated at the open, leaving the bias stronger for short. Otherwise on the long side, price will need to rise to 2935 to touch the lower boundary of trend channel on the hourly.


S: 2907 (low from 2nd & top of congestion from ON)
S: 2898 (ON low)
S: 2888 (from 28th)

R: 2918 (Lower high from PM)
R: 2924 (yesterday's close and congestion)


0831: Saw a RET entry building up on the 5 min and entered on the 1 min because of short bias and because I had never entered this early after the open and wanted to try it. Very expensive and something to remember.
0838: Price had crossed PM R level and entered on the first RET.
0842: Found R at anticipated R level of 2942 leading to the exit on next bar as price approached entry.
0845: Entered in anticipation of a breakout knowing that I would exit very quickly if there was hesitation.
0848: Reasons for short were a) The anticipated R level of 2924 was exhibiting itself and b) price had retested R at 0846.
0857: Reason for long was a) Price had broken out of R zone of 2924 and took the first RET after breakout. But this was a weak entry considering that the breakout was hardly convincing showing slow pace and range.

The big mistakes today were made on the first and last trade. The first was an early impulsive entry and the last was based on the barest of reasons because I wanted one last shot at getting something from the day and making up the big losses.

http://www.sierrachart.com/image.php?l=1372895668833.png

 

[game]

Broad checklist ideas:

1) Have I established S/R zones that price has to pass through after the open in order to classify the moment as either trend or not?

2) Am I taking a trade inside chop? Are there indications of traders having found value for the moment?

3) Look at pace, extent and duration of waves against S/R zones. What is the current bias based on this context?

4) If Reversal, is there a well established S/R zone close by? Has some kind of re-test taken place? Am I taking it because I missed the trend? If I was trading trend right now, would I be out of the trade?

5) If RET, is the move overextended? Were there better entries earlier that I missed? Am I chasing it?

6) Is pressure moving in direction of the trade?

7) Am I taking the trade out of boredom and a need for action?

Idea for slowing down and becoming deliberate: Keep an pen an paper while trading. Write down brief reasons for entering, exiting or staying neutral. Cycle through checklist repeatedly.

 

[MadeMan]

Hey Game

i like the progress u made thus far and the effort u put into this!
keep it on! u will get rewarded anytime soon !

Quote from game:

Broad checklist ideas:

1) Have I established S/R zones that price has to pass through after the open in order to classify the moment as either trend or not?

why Trend ? , how about Strenght or Weakness ? (confirmed)

2) Am I taking a trade inside chop? Are there indications of traders having found value for the moment?

Yep , Nice , u never should trade indecision or at value areas
trade the extremes...

3) Look at pace, extent and duration of waves against S/R zones. What is the current bias based on this context?

agree , examp. if buying pressure against resistance is high , u may want to rethink shorting res. or u may see absorbtion going on.. ie. no strong reactions torwards res. etc.. HL /HH (springboard in the making)

4) If Reversal, is there a well established S/R zone close by? Has some kind of re-test taken place? Am I taking it because I missed the trend? If I was trading trend right now, would I be out of the trade?

good points , never ever take a trade because u think u missed something! , whats happening atm? , is strenght returning? are sellers done for now ?

5) If RET, is the move overextended? Were there better entries earlier that I missed? Am I chasing it?

good points again , is there a lack of upwards progress ?(shortening of teh upward thrust ) are buyers losing steam ?
be patient and wait for S/R to be taken out etc...

6) Is pressure moving in direction of the trade?

keeps your head cool while in the trade , where are the first
pot. trouble areas ? what do you want to see at those areas?

7) Am I taking the trade out of boredom and a need for action?

never ever do that .. no need to hurry the markets are there forever! wait for A+ setups .. they literaly jump at you when they develope

Idea for slowing down and becoming deliberate: Keep an pen an paper while trading. Write down brief reasons for entering, exiting or staying neutral. Cycle through checklist repeatedly.

always good, !

 

[game]

Day 4 of 10
Prep:
Price above channel on the Daily and below channel on the hourly since the 24th. A strong up thrust at PM was rejected and price then fell sharp. The PM's action colors my bias short.

S: 2948 (PM S)
S: 2935
R: 2757 (mp of fall from PM)

0841 Noted the action as being sideways with hints of buying pressure. Waited to see if pressure would be enough to cross the mp of downswing at 2951.
0846 Price crossed MP and took the first RET after this.
0850 Price found R at OH. Exited on break of DS and return to entry.
0858 Waited to see if price would bounce back and make a range or if it would breach Support zone.
0904 Took first RET after price broke down through S zone. This level at around 2945 had been important in the past, so exited quickly once the retest of the low was showing signs of holding.
0907 Took the Reversal long because a) 2945 had been an important level in the past and had recently acted as S b) The low had been tested three times.
0910 Expected price to find S as it had the last three times. Exited once it was clear that price was headed down.
0914 Took the first RET after the start of the last downswing. Exited position on break of DS line and crossing of LSH
0938 Price stopped it's ascent at the MP of bigger downswing. Too the short as Reversal because a) The larger trend had been down for the day b) Price had found R at the MP of last downswing

I can't see any serious errors today. The last short was not a high p trade and I did not need to take it. The most expensive trade was the loss on the second long Reversal. Since price had found S thrice before, I wanted to give the trade a lot of room and kept relying on the S levels from the left to kick in. My instinct is to exit trades fast when they are not working - in this case it would have been an exit at break of DS line. But my last sim test run of 20 sessions showed me the need to give the trade room and use S/R levels from the left. It did not work this time, but I need to continue giving losing trades room as long as the entry premise is sound.

http://www.sierrachart.com/image.php?l=1373072896356.png