Certainly, in hindsight, most all price action can be rationalized. My comments related to randomness are, for example, why did price reverse at resistance one time and then break out at another? Those types of events are what currently seem random to me.
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My Head is Spinning
- Thread starter DocPMD
- Start date
Certainly, in hindsight, most all price action can be rationalized. My comments related to randomness are, for example, why did price reverse at resistance one time and then break out at another? Those types of events are what currently seem random to me.
The truth is, it is almost impossible to make substantial profits as a retail trader with a short holding period using a typical retail broker. Your costs are just to high. The shorter your holding period and the more trades, the worse your odds. If you can become a market maker you can make good money. If you can cut costs to the bone, you may be able to make good money. If you can get your orders regularly into the queue ahead of most other orders you can suck up market orders and buy on the bid and sell on the ask and pocket the spread. You'll make money and make good money, if your costs are low. If you can cheat and not get caught you can make money. But most retail traders who try to day trade or scalp are going to lose. If you are retail using a retail broker, trade on a longer time scale and you have a better chance of making money. Remember as a retail customer, your broker is not your friend. Option trading is even more complicated. Options provide still better opportunities for brokers and the professionals to entice and fleece the novice. The same basic considerations apply as for equities and futures. You must get your costs down.
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PA IS BASED UPON PRICE PATTERNS and the PA setups within those patterns. So, when you see a pattern that should behave a certain way 60% of the time and it doesn't then the fact that it doesn't becomes a more important piece of info than the pattern itself. It is just as important to know what to do when A pattern failS as when they succeed. Most FORMER PA pattern traders have NEVER learned the latter and hence they write off PA patterns as at best a 50/50 proposition when in reality there is a slight edge more like 60/50 and at times 70% to 80% chance the pattern wil succeed.Certainly, in hindsight, most all price action can be rationalized. My comments related to randomness are, for example, why did price reverse at resistance one time and then break out at another? Those types of events are what currently seem random to me.
There are basic 3 rules to all PA PATTERNS AND SETUPS. 1) CONTEXT 2) CONTEXT 3) CONTEXT.
Resistance/support are just lines on a chart were price paused previousley. But there comes a time when price will b.o. One way or the other. Some institution will drive price right thru a resistance line and we get a b.o. At other times a bearish institution (s) will stop price dead at resistance, sooner or later one side wins and then b.o. occurs. You cannot know when that will happen. However, when it does you can see it. And it means something! Nevertheless, you can play the odds until the b.o happens. For instance, we know that 75% to 80% of b.o.'s fail UNTIL ONE does in fact succeed. Therefore, in a range that is wide enough to make scalps worthwhile short the top 1/3 of the range and go long at the bottom 1/3 as price traded towards the bottom. That is, catch falling knifes at the bottom and arrows at the top of the range. The odds are strongly in a traders favor. But, a trader must keep a hard SL for the b.o. That does, sooner or later, appear.
NOTHING IS RANDOM. THERE IS NO NOISE. EVERY TICK MEANS SOMETHING. Most would vehemently disagree with me.
DocPMD,
I suggest you consider adding order flow to your price action trading methodology. If you concentrate on one futures market and stick with it you will begin to see things more clearly.
Take a look at this (it's free).
http://www.jigsawtrading.com/learn-to-trade/free-order-flow-analysis-lessons/
You probably have some doubts about it. Go here: http://investimonials.com/ and look at the software ratings.
You can also learn a lot by going to jigsaw trading youtube page. I am not pushing Jigsaw as there are other tools available such a Market delta and BookMap. The reason I selected Jigsaw is it is a one time fee to buy as opposed to subscription based.
Also helpful is the use of footprint charts rather than candles alone. Why? Go to Market delta's Youtube page and watch a few of their videos. https://www.youtube.com/channel/UCLdZZPcnxZLB_G7bzG8ZM7A
If you decide to add the footprint chart to your screen there are many providers. Shop around.
A couple other useful tools are volume delta and volume profile.
Word of warning: It takes a significant investment of time to understand the DOM/Tape. You will NOT be using it effectively for several months. You need to concentrate on one futures market and learn how it trades.
* Disclaimer* - I am not affiliated with Jigsaw other than as a satisfied customer. I do not know if it works for equity trading (I suspect it isn't as useful in equities).
I suggest you consider adding order flow to your price action trading methodology. If you concentrate on one futures market and stick with it you will begin to see things more clearly.
Take a look at this (it's free).
http://www.jigsawtrading.com/learn-to-trade/free-order-flow-analysis-lessons/
You probably have some doubts about it. Go here: http://investimonials.com/ and look at the software ratings.
You can also learn a lot by going to jigsaw trading youtube page. I am not pushing Jigsaw as there are other tools available such a Market delta and BookMap. The reason I selected Jigsaw is it is a one time fee to buy as opposed to subscription based.
Also helpful is the use of footprint charts rather than candles alone. Why? Go to Market delta's Youtube page and watch a few of their videos. https://www.youtube.com/channel/UCLdZZPcnxZLB_G7bzG8ZM7A
If you decide to add the footprint chart to your screen there are many providers. Shop around.
A couple other useful tools are volume delta and volume profile.
Word of warning: It takes a significant investment of time to understand the DOM/Tape. You will NOT be using it effectively for several months. You need to concentrate on one futures market and learn how it trades.
* Disclaimer* - I am not affiliated with Jigsaw other than as a satisfied customer. I do not know if it works for equity trading (I suspect it isn't as useful in equities).
An avenue one might explore is the use of empirically derived academic research involving risk premium "factors" and quantitative tactical variables related to the equity / stock markets.
Risk premium factors are attributes that particular stock universes / styles possess, such "size" ( small, medium, large company size ), "value" ( a company may be underpriced compared to it's "intrinsic" value thus may outperform in the future ), "beta/low volatility" ( a stock's recent historical volatility may by less than the overall market and may provide a measure of "safety"), "momentum" ( a stock that has outperformed over x period will continue to outperform over future x period ). Prior to 2005, there were few ways to access these factors without building portfolios containing a large # of positions. Since then, the advent and growth of managed ETFs has afforded the retail investor access. Factors tell the investor the "what" to invest in.
Tactical variables are signalling outputs calculated from data series that are "objective" in nature, which have produced "repeatable" statistically significant or non trivial positive outcomes, and are "replicable" in test conditions over long time frames. The signalling produced by a well designed and researched investment strategy can tell the investor the "when" to invest.
Asset classes ( such as metals, Forex, derivatives, Ag ) that don't represent "production of good and services" and "trading" short term movements ( noise), are coin flips in terms of generating consistent and low transactional alpha. By keying the "investment" process off of the long term trend of the U.S. and world equity markets, can put the odds in one's favor ( U.S. stocks have risen in 73% of years and fallen in 27% of years since 1954 ). The U.S. equity markets have had an advantage or edge in that the underlying long term trend has reflected solid stable policy, product innovation and development, persistence of credit cycle through monetary easing, incentives towards rewarding shareholders, etc.
The "compounding" effect of capital over time using an infrequent, mechanical, strategic allocation of capital between equity based assets and "safe" assets within a tax deferred account ( such as an IRA, Roth especially ) can be an important "core" part of one's long range asset accumulation plan. If you have the need to "trade", then it can be prudent to use a "small" portion of assets for that purpose.
examples of a quantitative tactical asset allocation strategy ( paste into browser address bar ): tinyurl.com/jnl6se8
tinyurl.com/znnqxdw
- Don't quit your day job
- Don't use leverage
- Open a Roth IRA
- Sometimes money is made by sitting in cash
- Don't be a hostage to the markets
- let the markets, profitability of the world's economys work for you
Risk premium factors are attributes that particular stock universes / styles possess, such "size" ( small, medium, large company size ), "value" ( a company may be underpriced compared to it's "intrinsic" value thus may outperform in the future ), "beta/low volatility" ( a stock's recent historical volatility may by less than the overall market and may provide a measure of "safety"), "momentum" ( a stock that has outperformed over x period will continue to outperform over future x period ). Prior to 2005, there were few ways to access these factors without building portfolios containing a large # of positions. Since then, the advent and growth of managed ETFs has afforded the retail investor access. Factors tell the investor the "what" to invest in.
Tactical variables are signalling outputs calculated from data series that are "objective" in nature, which have produced "repeatable" statistically significant or non trivial positive outcomes, and are "replicable" in test conditions over long time frames. The signalling produced by a well designed and researched investment strategy can tell the investor the "when" to invest.
Asset classes ( such as metals, Forex, derivatives, Ag ) that don't represent "production of good and services" and "trading" short term movements ( noise), are coin flips in terms of generating consistent and low transactional alpha. By keying the "investment" process off of the long term trend of the U.S. and world equity markets, can put the odds in one's favor ( U.S. stocks have risen in 73% of years and fallen in 27% of years since 1954 ). The U.S. equity markets have had an advantage or edge in that the underlying long term trend has reflected solid stable policy, product innovation and development, persistence of credit cycle through monetary easing, incentives towards rewarding shareholders, etc.
The "compounding" effect of capital over time using an infrequent, mechanical, strategic allocation of capital between equity based assets and "safe" assets within a tax deferred account ( such as an IRA, Roth especially ) can be an important "core" part of one's long range asset accumulation plan. If you have the need to "trade", then it can be prudent to use a "small" portion of assets for that purpose.
examples of a quantitative tactical asset allocation strategy ( paste into browser address bar ): tinyurl.com/jnl6se8
tinyurl.com/znnqxdw
- Don't quit your day job
- Don't use leverage
- Open a Roth IRA
- Sometimes money is made by sitting in cash
- Don't be a hostage to the markets
- let the markets, profitability of the world's economys work for you
An avenue one might explore is the use of empirically derived academic research involving risk premium "factors" and quantitative tactical variables related to the equity / stock markets.
Risk premium factors are attributes that particular stock universes / styles possess, such "size" ( small, medium, large company size ), "value" ( a company may be underpriced compared to it's "intrinsic" value thus may outperform in the future ), "beta/low volatility" ( a stock's recent historical volatility may by less than the overall market and may provide a measure of "safety"), "momentum" ( a stock that has outperformed over x period will continue to outperform over future x period ). Prior to 2005, there were few ways to access these factors without building portfolios containing a large # of positions. Since then, the advent and growth of managed ETFs has afforded the retail investor access. Factors tell the investor the "what" to invest in.
Tactical variables are signalling outputs calculated from data series that are "objective" in nature, which have produced "repeatable" statistically significant or non trivial positive outcomes, and are "replicable" in test conditions over long time frames. The signalling produced by a well designed and researched investment strategy can tell the investor the "when" to invest.
Asset classes ( such as metals, Forex, derivatives, Ag ) that don't represent "production of good and services" and "trading" short term movements ( noise), are coin flips in terms of generating consistent and low transactional alpha. By keying the "investment" process off of the long term trend of the U.S. and world equity markets, can put the odds in one's favor ( U.S. stocks have risen in 73% of years and fallen in 27% of years since 1954 ). The U.S. equity markets have had an advantage or edge in that the underlying long term trend has reflected solid stable policy, product innovation and development, persistence of credit cycle through monetary easing, incentives towards rewarding shareholders, etc.
The "compounding" effect of capital over time using an infrequent, mechanical, strategic allocation of capital between equity based assets and "safe" assets within a tax deferred account ( such as an IRA, Roth especially ) can be an important "core" part of one's long range asset accumulation plan. If you have the need to "trade", then it can be prudent to use a "small" portion of assets for that purpose.
examples of a quantitative tactical asset allocation strategy ( paste into browser address bar ): tinyurl.com/jnl6se8
tinyurl.com/znnqxdw
- Don't quit your day job
- Don't use leverage
- Open a Roth IRA
- Sometimes money is made by sitting in cash
- Don't be a hostage to the markets
- let the markets, profitability of the world's economys work for you
Wow. I am sure the books you read are theoretically interesting but how does "empirically derived academic research" help this guy with his trading?
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I'd like to thank everyone for their input so far. Some of the suggestions have been very helpful. Now I think I just need to hunker down and do some trading to get proficient.
One thing I would like to clarify, however, is the comment I made in the original post about my preference for "scalping".
I've come to realize that the definition of scalping means many things to many people. I did not mean it in the traditional sense of the word. I don't intend to try to trade the bid/ask spread or even to skim only a couple of ticks.
My definition would be to attempt to get, for example, 1 to 4 points on the ES.
I now have two very specific questions:
1. One person's opinion was that the ES is no longer volatile enough to make money intraday trading. OK, I may or may not agree, but what markets would you recommend?
2. I need recommendations for a new broker. I am currently with TDAmeritrade and the round trip cost on a single ES contract is around $7 total. That seems high to me. I like the ThinkOrSwim platform, but that isn't a huge factor.
One thing I would like to clarify, however, is the comment I made in the original post about my preference for "scalping".
I've come to realize that the definition of scalping means many things to many people. I did not mean it in the traditional sense of the word. I don't intend to try to trade the bid/ask spread or even to skim only a couple of ticks.
My definition would be to attempt to get, for example, 1 to 4 points on the ES.
I now have two very specific questions:
1. One person's opinion was that the ES is no longer volatile enough to make money intraday trading. OK, I may or may not agree, but what markets would you recommend?
2. I need recommendations for a new broker. I am currently with TDAmeritrade and the round trip cost on a single ES contract is around $7 total. That seems high to me. I like the ThinkOrSwim platform, but that isn't a huge factor.
Oh yes, you can drain 10 points out of NQ almost every day not to mention holding on when it rallies 50 points or more.NQ tends to be more directional. Yes, you can beat the 7 rt comm. several brokers will beat it.
DocPMD,
you like scalping, so go for it. The year is 2017, and I still make my income by scalping futures. A few suggestions:
- trade FGBL, good moves and low cost (EUREX exchange fee)
- trade the S&P emini, focus on the opening hour, lots of good opprtunities
- get your RT cost for the Bund under 1 EUR, for the emini under 3 USD (yes, I am talking RT cost, and yes, I am talking all-in, commissions, exchange fee...)
- if you dont know how to get your cost that low, I can go into more detail
- dont scalp all day long, not necessary
- start the day, make your 3-10 ticks, then go and enjoy the day, your life
- keep a balanced life, within your trading and in general
Greetings,
CALLumbus
you like scalping, so go for it. The year is 2017, and I still make my income by scalping futures. A few suggestions:
- trade FGBL, good moves and low cost (EUREX exchange fee)
- trade the S&P emini, focus on the opening hour, lots of good opprtunities
- get your RT cost for the Bund under 1 EUR, for the emini under 3 USD (yes, I am talking RT cost, and yes, I am talking all-in, commissions, exchange fee...)
- if you dont know how to get your cost that low, I can go into more detail
- dont scalp all day long, not necessary
- start the day, make your 3-10 ticks, then go and enjoy the day, your life
- keep a balanced life, within your trading and in general
Greetings,
CALLumbus