Making of a method

[game]

Quote from dbphoenix:


So we're back in the range, and we do nothing until the market tells us that it's time to do something, what to do, and where to do it, on June 5th (one could also go long off the test of support the following week if he was reluctant to enter on the 5th or 6th, though he would not know at the time that such a test would occur).

Looking at the chart from left to right and using the prints of price to form an assessment of information and price risk:

The overarching context would be how extended LNKD is.

The information given by the tests on Mar 15th Mar 22nd and April 12th is that there is valid R here.

Given the context and the re-tests, the short on April 18th would have been a compelling trade in anticipation of traders testing the prior swing point of 165.

In light of the context, I probably would not have taken the long immediately after the short got stopped out.

The LH from May 15th would have once again put me on short mode with an opp on May 28th.

With 2 shorts stopped out and no convincing long bias, I would be looking at 2 options:

a) Not doing anything until price leaves the Range
b) Using the Support shown through the creation of HL on June 24th to change bias and going long on June 26th in anticipation of a break from this sideways action.

 

[dbphoenix]

It's difficult to make any sort of hindsight analysis of this sort of thing that would lead to any hypotheses, much less conclusions, with regard to trading futures. The dynamics of stocks and futures are so different that arguably the only factor here that really matters is the overextension, which applies to futures only in the matter of oversold and overbought conditions, which are dependent on the trend channel, which exists primarily because traders like to stay within a reasonable distance from the mean. Plus there is the matter of float, which does not apply to futures.

Therefore (to get to the point), the long isn't as unreasonable as one might expect given that stocks can become and stay overextended for surprisingly lengthy periods of time. That doesn't change the fact that buying something that is overextended is considerably riskier than buying something that's coming off a bottom (in this particular instance, though, calling June 5th a "bottom" is something of a stretch), but whether or not one assumes the risk is up to the trader. What is more important is that the trader (a) knows that the risk exists and (b) knows what the extent of it is.

There is also the matter of gaps in stocks which one doesn't have to deal with in futures, except from Friday afternoon to Sunday evening. Those gaps can wipe out a profit with no trouble at all.

 

[Redneck]

Quote from dbphoenix:

Here the support and resistance levels are determined by the time the events in the above post take place. So is the demand line. Given the fact that price found resistance at the expected level and given that it broke the demand line, a short is legit. As I said above, this would have been exited the following Monday, but one can't know that at the time.


So we're back in the range, and we do nothing until the market tells us that it's time to do something, what to do, and where to do it, on June 5th (one could also go long off the test of support the following week if he was reluctant to enter on the 5th or 6th, though he would not know at the time that such a test would occur).

If one understands that this

Game,

I beg your indulgence

DB,

Would you mind putting on your auction market hat and describing this chart, from left to right, please

Thx
RN

 

[dbphoenix]

Well, in addition to what I've already said, there was of course a gap (a breakaway gap, in hindsight). Price rose to 180 then traded sideways for a week before making a charge toward 185, which failed immediately and dramatically (clue!). Price drifted sideways again for several days before buyers tried again, and failed again (another clue!). They then said the hell with it and let it drop to 165 (I say "let" because sellers weren't particularly aggressive). At that point, they for whatever reason saw value there so began buying again but they didn't have enough powder in their shells to get price past resistance. But I've already addressed this part.

What I didn't address was volume, and since this is a stock, it's appropriate to add it. I don't want to fool around with transferring all these lines to a new chart with volume appended, so I'll just point out that there's nothing remarkable about the volume at all, even after the first breakout, until price reaches its high at 202. There one sees a significant increase in volume, indicating that sellers are at last making an appearance and beating back the buyers, who are giving it that old college try.

The next bar, the collapse, sees almost double the volume from the previous session, indicating that buyers are trying like hell to support the price. Once they have done so, everybody backs off, returns to their corners, and price works its way sideways again.

And that's about that as far as anything interesting to note, except that volume has remained low ever since, even yesterday, indicating that sellers are allowing this to rise. When sellers have decided that enough is enough and it's time to take profits, it'll be interesting to see how buyers react, i.e., whether or not the volume increases.

As regards this left to right business, I should emphasize to those who are pursuing this type of trading that when conducting this sort of (discretionary subjective blah blah) backtesting, it is extremely important that one not allow whatever foreknowledge one has to influence his trading decisions. Here, for example, it is a grave error to pass up the bottoming action on the 5th because of the upcoming retracements. In real time, one cannot know there will be two retracements. Or even one. Or any at all. In real time, all one has is the bottoming action. Therefore, he has to evaluate that action as it happens and make the proper risk assessment. If he decides that the risk is not worth it, at least to him, then he is entitled to pass. However, he should not then beat himself up for having passed in case there is no subsequent retracement. Just as important, he should not pat himself on the back for having passed on the bottoming action just because a subsequent retracement presented him with another entry opportunity and try to apply that happenstance to the next situation which appears to bear some similarity to this one. Again, the bottoming action has to be evaluated as is. Otherwise, all the time and effort spent backtesting is wasted.

 

[trilogic]

Quote from dbphoenix:

Well, in addition to what I've already said, there was of course a gap (a breakaway gap, in hindsight). Price rose to 180 then traded sideways for a week before making a charge toward 185, which failed immediately and dramatically (clue!). Price drifted sideways again for several days before buyers tried again, and failed again (another clue!). They then said the hell with it and let it drop to 165 (I say "let" because sellers weren't particularly aggressive). At that point, they for whatever reason saw value there so began buying again but they didn't have enough powder in their shells to get price past resistance. But I've already addressed this part.

What I didn't address was volume, and since this is a stock, it's appropriate to add it. I don't want to fool around with transferring all these lines to a new chart with volume appended, so I'll just point out that there's nothing remarkable about the volume at all, even after the first breakout, until price reaches its high at 202. There one sees a significant increase in volume, indicating that sellers are at last making an appearance and beating back the buyers, who are giving it that old college try.

The next bar, the collapse, sees almost double the volume from the previous session, indicating that buyers are trying like hell to support the price. Once they have done so, everybody backs off, returns to their corners, and price works its way sideways again.

And that's about that as far as anything interesting to note, except that volume has remained low ever since, even yesterday, indicating that sellers are allowing this to rise. When sellers have decided that enough is enough and it's time to take profits, it'll be interesting to see how buyers react, i.e., whether or not the volume increases.

As regards this left to right business, I should emphasize to those who are pursuing this type of trading that when conducting this sort of (discretionary subjective blah blah) backtesting, it is extremely important that one not allow whatever foreknowledge one has to influence his trading decisions. Here, for example, it is a grave error to pass up the bottoming action on the 5th because of the upcoming retracements. In real time, one cannot know there will be two retracements. Or even one. Or any at all. In real time, all one has is the bottoming action. Therefore, he has to evaluate that action as it happens and make the proper risk assessment. If he decides that the risk is not worth it, at least to him, then he is entitled to pass. However, he should not then beat himself up for having passed in case there is no subsequent retracement. Just as important, he should not pat himself on the back for having passed on the bottoming action just because a subsequent retracement presented him with another entry opportunity and try to apply that happenstance to the next situation which appears to bear some similarity to this one. Again, the bottoming action has to be evaluated as is. Otherwise, all the time and effort spent backtesting is wasted.

is this what you do ?

http://priceactiontradingsystem.com/testimonials/

 

[Redneck]

DB

Think I've depicted, in attached, what you've just described

Where / how would you go about defining the value area vs the extremes

Thx
RN

 

[trilogic]

Quote from Redneck:

DB

Think I've depicted, in attached, what you've just described

Where / how would you go about defining the value area vs the extremes

Thx
RN

166 mean anythign to you ?

then it went back up to round number 200

thats all i see

 

[Redneck]

Quote from trilogic:

166 mean anythign to you ?

NO..., further I don't trade this stock so I know squat about its personality

Simply;

I have a hypothesis I'm trying to work out - and bouncing things off DB to give me food for thought

RN

 

[Redneck]

Quote from trilogic:

thats all i see

btw, that is all you'll ever see until you decide to nut up and do the work to learn how to read the story/ decipher the language

RN

 

[dbphoenix]

Quote from Redneck:

DB

Think I've depicted, in attached, what you've just described

Where / how would you go about defining the value area vs the extremes

Thx
RN

I haven't traded stocks in nearly twenty years and I certainly haven't studied LNKD. But the value level and the extremes of a given trading range are essentially the same as anywhere, determined by where the most and least trading takes place. A quick and dirty way of finding the value level is to plot "price at volume" or "price by volume", which in this case would place the value level at around 75, which happens to be -- not surprisingly -- in the middle of the trading range. A side benefit of plotting PBV is that one can use the mean to determine the limits of the trading range, whereas they might be difficult to eyeball.