OMG....Where are the price bars???

[k p]

On the contrary, most of the successful traders I know seem to take the luxury of adopting a coarser trading methodology than that which they began with as they come to better understand what is happening and are less fearful of unknowns.

I too am hoping that IIHeroic can share some more in regards to emini's questions.

This phrase in particular that I quote strikes me as being part of the secret. When you follow Db's posts, I have seen often where he is posting about the need to always look at the bigger picture. One quote of his that I have mentioned many times is that a person needs to decide if they want to make money or they want to trade, the implication being that trading more does not necessarily lead to more money. Specifically, in his NQ thread, he points out just on Friday that the short on the daily chart taken below the crest of the RET after the DL was broken is worth something like 120 points now. Now there was plenty of opportunity to make points on the way up and down in that huge range we were in for the past few days, but still, 120 points on only one contract is a very decent return, and these long term traders are hardly trading one contract.

I know that as a new trader, getting in at the best price seems to be so important, and then locking in whatever profit you have seems like the best thing to do at the time, but huge returns can also be made when you look at the bigger picture.

Often when I look at the charts and focus on the hourly, whatever happens within that hour bar doesn't seem all that important, but only in so far as how much above or below the previous bar has price moved, and what happened once it made that break (ie.... did it continue and quickly come back) Perhaps its not even focusing on the previous bar, but focusing on the level of the rejections of the other price levels that stand out on the hourly bar. So although we have that huge range for the past few days, it came off the significant drop at the high, and once we worked through that range, we had a serious drop at the end of Friday. So its my assumption that a long term trader would have shorted exactly below the top of that crest, in the RET, and waited through this range to see which way it broke, and since it broke down, then there is no reason to get out. Many of these rejections on the one minute bar chart are insignificant, but if this rejection also happens to be the high or low on an hourly chart, then it takes on more significance of course.

The implication to this in terms of the daily chart for the NQ in this past week is that although the huge range was quite trade-able, waiting to see which way price would break was most significant. The fact that it couldn't first rally past the previous day high stood out, and then the fact that it couldn't drop below the previous day low was also significant. But once it couldn't break out again, or drop below again, it got interesting.

Don't get me wrong though emini.. I love your approach. I think once you get the levels right and you see the REJ, there is no need to wait for the 1 minute chart to show a RET and all an entry... you can get in on a RET on a tick chart. I think this is where this work will pay off. Nailing down those levels, getting in at that danger point, and then zooming out to watch the forest instead of the trees seems like a killer trading strategy.

 

[eminiman414]

Funny you say this. In doing a replay of two consecutive days both days I went long both longs contained by a 60m DL. Question I asked myself was on day two should I still be in the long from the previous day? Then I started thinking if you do get a "precise" entry let's say on the daily channel extreme and price continues on in your favor can a "day trader" and his trade turn into a longer term trade? The answer of course will be it depends on what one wants. Definitely will avoid more potential loses etc.

 

[k p]

can a "day trader" and his trade turn into a longer term trade?

I have seen it written before that a day trader doesn't being a swing trader, or a scalper doesn't become a day trader... but I have no idea about the rationale behind this. I guess that if you're using a tick chart for example and applying SLA, then the slightest break of a line should mean you're out. But if you continue to hold, then you're using an entry from one method, but an exit based on a different time frame. I think there is nothing wrong with this as long as you know what you're doing, but I don't understand the implications of what is means that one type of trader doesn't turn into the other type of trader just because he holds longer.
At the same time, I'm sure that this is in fact what the experts do, and it works damn well when you get those levels right (as best illustrated by 40D of course). Often I agonized this entire week about not being able to get into the move just because I didn't have a RET on the 1 minute chart even though watching the right tick I could see countless RETs. The secret is of course where the REJ happens. Not all RETs are the same.... and as you told me with your real estate example... location location location!

 

[eminiman414]

I was being funny more than implying anything. A trader is a trader that's it in my book anyway. Lol

 

[llIHeroic]

Differentiation is the process by which one learns to understand increasingly subtle dis-similarities between situations that first appear similar, and what they actually mean.

Let me use an extremely course example to attempt to demonstrate what I mean. Let's say you're currently using a right trend line, more commonly called a demand or supply line in recent days, being broken and an opposite visible trend forming in the other direction for entry. Some fail immediately, some move favorably to a marginal degree and taper off back past your point of entry, and some result in successful trades.

Do you really think that every "setup" you take has a completely identical context, and that the outcome is completely random or beyond your ability to know at the time the trade is entered?

Let's say you study 50 of your entries of a specific "setup" to your perspective, and filter out all of the ones that fail in under five minutes. Now, maybe you can find a prevalent condition or context that occurs far more often on your losers than your winners, and you put them in a separate pile in your mind.

If you look back on all 50 after this analysis, instead of seeing context, "Line-Break and Ret" for all 50 situations, you'll be able to see either context, "Line-Break and Ret with Condition A", or "Line-Break and Ret without Condition A." You just made two piles out of what used to be one pile in your mind, and you now know that one pile is better for continuation than the other.

Your efficiency improves and you understand more about the market than someone who just learned what a line-break + ret is, because you've differentiated it further than them. The market has a huge amount of information available for differentiation, but most people content themselves with probabilities and randomness instead of shifting through them day after day and improving their trading even more.

I hope that makes some sense. I made an image to try to explain the concept I'm trying to convey as well. The point is that the answers are out there and the market can show you what you're doing wrong, if you keep working hard to find them, and you don't settle for confusion or probabilities.

 

[k p]

Differentiation is the process by which one learns to understand increasingly subtle dis-similarities between situations that first appear similar, and what they actually mean.

Let me use an extremely course example to attempt to demonstrate what I mean. Let's say you're currently using a right trend line, more commonly called a demand or supply line in recent days, being broken and an opposite visible trend forming in the other direction for entry. Some fail immediately, some move favorably to a marginal degree and taper off back past your point of entry, and some result in successful trades.

Do you really think that every "setup" you take has a completely identical context, and that the outcome is completely random or beyond your ability to know at the time the trade is entered?

Let's say you study 50 of your entries of a specific "setup" to your perspective, and filter out all of the ones that fail in under five minutes. Now, maybe you can find a prevalent condition or context that occurs far more often on your losers than your winners, and you put them in a separate pile in your mind.

If you look back on all 50 after this analysis, instead of seeing context, "Line-Break and Ret" for all 50 situations, you'll be able to see either context, "Line-Break and Ret with Condition A", or "Line-Break and Ret without Condition A." You just made two piles out of what used to be one pile in your mind, and you now know that one pile is better for continuation than the other.

Your efficiency improves and you understand more about the market than someone who just learned what a line-break + ret is, because you've differentiated it further than them. The market has a huge amount of information available for differentiation, but most people content themselves with probabilities and randomness instead of shifting through them day after day and improving their trading even more.

I hope that makes some sense. I made an image to try to explain the concept I'm trying to convey as well. The point is that the answers are out there and the market can show you what you're doing wrong, if you keep working hard to find them, and you don't settle for confusion or probabilities.

Wow.. quite the good post.

I don't want to hijack emini's thread, but I wanted to take a crack at explaining what I'm seeing specifically about these two bars. Would love to hear your analysis and what you see. I love how this trading business is about learning what the market is telling you and this starts with learning the language that the market is speaking, so if you could take a moment to share how you interpret your example, this would be very helpful!

 

[llIHeroic]

I will try to be brief in my response to avoid potentially de-railing emini's journal down a path he didn't intend for it.

Your answer was, in essence, correct. I also believe that the first case is much more likely to continue long. Your observation of the closes relative to each other was very good.

I think you're on a very fruitful path with applying rational thought about the volume levels and beginning to draw hypothesis from that.

Keep in mind, it is not entirely accurate, or at least it's an oversimplification, to say that higher volume on a downward translating bar is akin to more interest in selling. Every contract sold is bought by another person or entity.

Rather, higher volume means that the market itself was denser in that particular area, an that particular time. I'll just go ahead and splice in a very similar conversation I had not too long ago about this very concept.

...understand the mechanics of how a market moves, which is beyond a lot of people on these boards. At a certain level of value, all of the offered quantities need to be consumed for price to tick up.

This is a huge aspect of trading that seems completely overlooked often-times, or completely misunderstood. If we see one bar translate up 5 points with 80k contracts traded, then the next bar translates only 1 point with 85k contracts traded; this means the offer is getting abnormally dense and it's either going to need to give way and price goes through the compression, or the whole trend will be halted in it's advance.

If we see a bar translate up 5 points 20k volume and then translate 1 point on 7k volume it's a completely different scenario and context in the market. To throw away the vast differences between those two situations and view them as identical is just something that wouldn't occur to me.

Regardless, there's a lot more than could be said, demonstrated, or explained, but they are peripheral to my original point. I just wanted to try to take the time to respond to your query since you put forth the effort to complete my drill.

In Conclusion

My point about differentiation is that the answer to this particular question in my image isn't the important part about learning to trade. The important part is understanding how to find the answer to a question like these. I agreed that Case A is my answer as well, but no one should take my word for it. Observe and test it yourselves.

I could make dozens of differentiation questions like that one. Start learning to differentiate contexts that confuse you or do something you didn't expect on your own. If one doesn't shackle himself with false beliefs like market randomness in order to soothe the ego, or content themselves with playing probabilities because they don't feel like doing the work, his success should continue to grow as a natural consequence of a rational mind at work.

 

[k p]

If one doesn't shackle himself with false beliefs like market randomness in order to soothe the ego, or content themselves with playing probabilities because they don't feel like doing the work, his success should continue to grow as a natural consequence of a rational mind at work.

Thanks! For my self personally, volume is not something that I am going to get into. There is plenty for me to learn about with just price, and as mentioned in my journal, the barrier to making money for me at this point is more in the psychology department vs. technique/knowledge. Watching the "open/close" of a bar has similarities in Wyckoff in reference to the buying and selling waves, so these things do all fit together I believe.

I did want to ask a final follow up question if I may. You differentiate between doing this careful and rational analysis and contrast this with just playing probabilities. Trading is after all just a probabilities game. The filters you introduced here can certainly help a trader to further differentiate one thing they look for and hence increase the potential for the trade to work better, but I'm not sure why you relegate the idea of probabilities into the "lazy trader" pile. Perhaps there is something I'm not understanding so I just want to make sure to ask.

Don't get me wrong, I much prefer learning to read the language that the market is speaking, but at the end of the day, isn't it the case that everything that we look for, everything that we need to see to give us confidence to enter a trade might still only yield an 80% chance of the trade taking off and hence if it doesn't, we just have to put this one failed trade into the pile of trades that just don't work which is to be expected? I know that Mark Douglas says in his book that all this simply means is that the traders who came into the market in the past to push price up and hence bring this trade to fruition just didn't come into the market this time... simple as that.

 

[NoDoji]

Let's say you study 50 of your entries of a specific "setup" to your perspective, and filter out all of the ones that fail in under five minutes. Now, maybe you can find a prevalent condition or context that occurs far more often on your losers than your winners, and you put them in a separate pile in your mind.

If you look back on all 50 after this analysis, instead of seeing context, "Line-Break and Ret" for all 50 situations, you'll be able to see either context, "Line-Break and Ret with Condition A", or "Line-Break and Ret without Condition A." You just made two piles out of what used to be one pile in your mind, and you now know that one pile is better for continuation than the other.

This post is superb. When doing statistical analyses of price movement around a particular pattern, I always compare the successes to the failures, make note of everything that consistently differentiates one group from the other, devise contextual filters based on this information, and test the results over time with the filters.

Without the filters, the price movement surrounding the appearance of a pattern is often quite random. With the filters applied, the results over time can be far above average (70% win rate, for example).

 

[eminiman414]

I have done this before but I found it to be almost too rigid and I started to focus more on like I said in my first post the pattern versus what buyers and sellers are doing. I have a setup that appears roughly 100 times in a year w just under a 70% win rate and a 4.6:1 profit to loss. I classified the types of entries into V U lll. The more I filtered "things" the more handcuffed I felt during the trading session. What I am after now is more of the flow of it all and thinking more about buyers and sellers versus oh ok this trade is invalidated bc it "looks like" this (lll) instead of this (V). My struggles are now finding static charts of no use because the pace of it all isn't there. You can have an idea of it but you can't see it and feel it. It's like trying to learn how to shoot free throws by looking at pictures of people shooting free throws as opposed to going out in the driveway and shooting 100 times. I'm doing more focused replay now but it takes a decent amount of time to go through. I suppose I shouldn't call it a struggle it just takes more time. Which is fine.

My goal is to truly understanding the flow of it all and what that means in terms of buying and selling. With static charts I feel your missing a 1/3 of the puzzle by not being able to see the pace. You can see duration and extent on a static chart but there is some left to be desired by not seeing the chart move. I also think the more rigid and the more you study static charts the more anxious one can get once the chart starts moving. Think about it. It's easy to see and analyze all of this when the day is done and your chart isn't moving. You train yourself to see this environment as not moving. So when a few ticks come against you you go uh oh and exit. Then at the end of the day you recap and it's all cws. The you in all of this I'm speaking in general terms and a bit of my problems I had in the past.

I suppose now in terms of differentiation I am attempting to see and feel the behaviors of traders and what that could mean for the next probable direction of price. Another issue I have is trying to qualify it all and then once it's qualified quantify it. Maybe I'm just complicating this all more than it has to be and in my mind i understand what I am trying to do but putting the words on paper for all of you to read it's not coming out right lol.

Like how can I qualify and then quantify a change in pace as part of an entry process? Or going "parabolic" into R and then the pace just "drops off" or as parabolic as we go into R price gets shot off it like a slingshot w "more force" than the parabolic move into R to begin with. I believe there is so much more info in these "behaviors" than the info I'd get from a bar closing a certain way. I "saw" moves/behavior like this on a 1min but at times would lose it because at times these pushes/probes/rejections were almost "hidden" within the bar. I suppose I wasn't skilled enough yet to do anything with these behaviors. Seeing price as a line is helping with that. There have been times I see the pace change on a move up and then down even within that same 1min bar but it was more difficult for me to see it as a wave where now looking at a line I can see the waves of these movements. I have many examples already of some interesting things even within the scope of the traditional SLA approach w opening all this up.

I'm attempting this so we'll see what happens however the traditional SLA and the other strategy will never go away if I can't "get this"