NPP's Divergence and Breakout Method

N

no_pm_please

This journal is about a overall approach to trading the Emini market. I've only been trading it live for a couple of weeks so the rules may need to be modified as we go along. I'll keep the rules in a notepad file and post them when they change with some sort of revision # so anyone following can know if they have the current rules. I plan to document the method, illustrate with screen snapshots, report trade entries/exits in realtime, and post summary information as the journal develops.

First off let me say I no longer have any other means of making a living outside of trading. I'll probably cut short some trades just to bank the money (scared money). If I do, I'll only post the results of what I do and not what the method does. I'm currently trading 6 emini contracts per-trade and plan to grow it to 10 contracts if this method keeps making money over the next month or 2. 10 contracts is important to me because at that level if I only make 1 point per-day then I'll have a six figure income (about 3x what I need to get by).

For today I'm going to show each piece of information I use and try to explain what it's for one at a time. After I'm done with all the pieces I'll post a couple of trades from last week and show how everything came together to make the trade. I use four screens with this method so it may be confusing for some people to follow. Please be patient. I'll try to simplify everything as much as I can and hopefully we can have a good positive journal.
 
Quote from no_pm_please:

First off let me say I no longer have any other means of making a living outside of trading. I'll probably cut short some trades just to bank the money (scared money).
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Don't do it, you'll fail unless you stick to your system; take my word for it :)

Good luck, looking forward to another great journal!
 
Quote from no_pm_please:

I'm currently trading 6 emini contracts per-trade and plan to grow it to 10 contracts if this method keeps making money over the next month or 2.
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I was wondering if you have a hard-and-fast MM plan. Two ideas I've seen discussed on ET:

(1) Market conditions-- increasing size when winning in succession, decreasing when losing. Acrary has discussed this here on ET. It goes with the belief that trades are correlated with market conditions. I have found that my own winners and losers are correlated, contrary to what many assume about random outcomes.

(2) Account size-- A really good idea I heard also on ET, let say one starts with $100k and plans to increase size upon reaching $110k. Then also plan to decrease size if the account falls back to $105k, not waiting for the chance to get back to $100k.

Thanks,

Pete
 
Here's the upper part of screen 1. It's a 5 min. chart of the tick indicator. I don't watch it all the time, but I use it as a tool to indicate a very low risk entry or early warning indicator of time to exit. What I'm looking for are extremes aka spikes to help with my timing.

The bar spacing is set to 3 within 2000i and uses about 1/2 the screen.
 

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Here's the bottom half of screen 1. It's the 5 min. ES with the volume indicator added. The bar spacing is formatted as 7 in 2000i. I use the volume on the ES price to look for spikes as in the Tick. Both of these are subjective so I don't use them as more than a confirmation tool and only at certain times.
 

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Here's screen 3. I've skipped 2 for now because that's the heart of the method and I don't want this to get lost. This screen uses 30 min. bars of the big SP contract. It has 3 indicators on it. 1). CCI average using 20,10,100, and -100. 2). ADX using 14 period. and 3). RSI using 54 periods. The bar spacing on this screen is 6 bars.

I use this screen to help determine market environment. The CCI is used to help figure risk areas. Above 100 is risk on long side and below -100 is risk on short side. This has some value if the market isn't trending to help figure in the larger picture. As you can see we're above 100 as of the close Friday so I would say we're at risk of some decline.

The ADX is used as a tool to measure longevity of the trend. If the ADX rises above 25 then I look for that as a area where the current direction is likely to stall. As of Friday we ended above 25 so this is another indication that I might want to expect the long side to stop trending.

The last piece is the RSI. I use this to help figure out which side of the market I want to trade. If the RSI is above 50 I want to take long side breakout trades. Below 50 I'm looking for short side breakout trades. If it's crossing between the two then I'd be looking for range bound trades. I'm not sure this has much value but it's on my screen for now.
 

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For screen 2 you'll need this indicator. I received this from another ET member and it's the heart of the way I view the price action.It can be cut and put into the easy language indicator. Just make sure in the properties you set it to use the same scaling as the symbol. If you're in another timezone than central time you'll need to change the times. Also it has labels that helped me understand what I was looking for. I marked them so they can be commented out or deleted if they're annoying.
 

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There's a mistake in the indicator. Where it's calculating the average range for the past 10 days it's only using yesterday's range.

Here's the corrected code.
 

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Quote from ig0r:

Don't do it, you'll fail unless you stick to your system; take my word for it :)

Good luck, looking forward to another great journal!
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I agree with Gary here.

What has helped me is to keep data on my winning trades that I get from my entry signals. I look at things like maximum and average retracements from the entry point before the market goes in my favor. This helps me know where to place my stop loss points. I also keep data on minimum, average and maximun profit opportunities to help me know where to start looking for exit points in the trade.

This is my way of having confidence in my entry signals by knowing what my risk is and where to take profits. This way you do not cut yourself short on profit opportunities, and at the same time, not to overexpose yourself to market fluctuations.

Charles
 
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