PA "Setups"
- Thread starter dbphoenix
- Start date
- Status
I can't put any percentage number to it but it's highly probable that it will continue to rise since there seems to be strength developing at the 50% retracement point.
...but this is ET, no targets, no stops, no risk management and people want to talk odds lol
Naturally I knew quite well before I started that this thread would become a troll magnet. Maybe not immediately but eventually. But those who are annoyed by the intrusions can avoid them by using Ignore. And as the pluses of such a thread far outweigh the minuses . . .
I hope ND won't object to my copying a post she made yesterday as the point of this thread is of course to highlight "setups" that occur regularly, if not frequently, and are easy to find and easy to test. Once one has done so, there is no need to guess.
This is not the only protocol, of course, but it's an excellent start:
Q: How do you predict the odds of a favorable price move on each trade?
A: First I select a setup using eyeball analysis. A setup is a price behavior pattern (for example, in a non-trending environment, price came from a swing low, tested the previous swing high, and turned without breaking through that high). I've noticed over time that when this occurs price has a strong tendency to find support at the swing low and make another attempt to visit the high.
I now examine every appearance of this setup with a specific instrument during my selected trading hours and I note in a spreadsheet the results: How often does the support hold and how often does it break down? If it breaks down by less than N ticks, how often does price revisit the high? If it breaks down my more than N ticks how often is it possible to exit at break even before the risk:reward ratio becomes negative?
Eventually this sort of study leads to a positive expectancy result based on rules. An example might be that if the support level holds or breaks down by less than 4 ticks, a 12 tick profit is possible 61% of the time. If the support level breaks down by more than 8 ticks, an adverse excursion of more than 12 ticks occurs 63% of the time. If the level breaks down by more than 3 ticks, but less than 9 ticks a break even exit is possible 73% of the time.
So now I can create a set of rules based on this price behavior in this defined price environment and then apply the rules to 100 consecutive appearances of the setup and see how close to my original study the results are. If I find the result to be very close to the original study, I have a positive expectancy trade setup to add to my arsenal as follows:
In a non-trending environment, price comes off a swing low to test a previous swing high and turns back down off that level.
1. Place a limit order to buy 1 tick above the previous swing low.
2. If filled, place a stop loss of 12 ticks and a profit target of 12 ticks.
3. If price breaks through the swing low by more than 3 ticks, move the profit limit order to the entry price.
--NoDoji
I hope ND won't object to my copying a post she made yesterday as the point of this thread is of course to highlight "setups" that occur regularly, if not frequently, and are easy to find and easy to test. Once one has done so, there is no need to guess.
This is not the only protocol, of course, but it's an excellent start:
Q: How do you predict the odds of a favorable price move on each trade?
A: First I select a setup using eyeball analysis. A setup is a price behavior pattern (for example, in a non-trending environment, price came from a swing low, tested the previous swing high, and turned without breaking through that high). I've noticed over time that when this occurs price has a strong tendency to find support at the swing low and make another attempt to visit the high.
I now examine every appearance of this setup with a specific instrument during my selected trading hours and I note in a spreadsheet the results: How often does the support hold and how often does it break down? If it breaks down by less than N ticks, how often does price revisit the high? If it breaks down my more than N ticks how often is it possible to exit at break even before the risk:reward ratio becomes negative?
Eventually this sort of study leads to a positive expectancy result based on rules. An example might be that if the support level holds or breaks down by less than 4 ticks, a 12 tick profit is possible 61% of the time. If the support level breaks down by more than 8 ticks, an adverse excursion of more than 12 ticks occurs 63% of the time. If the level breaks down by more than 3 ticks, but less than 9 ticks a break even exit is possible 73% of the time.
So now I can create a set of rules based on this price behavior in this defined price environment and then apply the rules to 100 consecutive appearances of the setup and see how close to my original study the results are. If I find the result to be very close to the original study, I have a positive expectancy trade setup to add to my arsenal as follows:
In a non-trending environment, price comes off a swing low to test a previous swing high and turns back down off that level.
1. Place a limit order to buy 1 tick above the previous swing low.
2. If filled, place a stop loss of 12 ticks and a profit target of 12 ticks.
3. If price breaks through the swing low by more than 3 ticks, move the profit limit order to the entry price.
--NoDoji
And before this particular setup resolves itself, those who've followed my threads know how important context is to me. So . . .
And while my use of freely-available online charting is a subject of great hilarity amongst the trolls, those who've followed me through my journals understand that I use this one and stockcharts and bigcharts to demonstrate to the beginner that there is a lot available for him to play with at no cost while he's trying to decide whether or not he wants to pursue trading. And if he is intrigued enough to move away from static charts toward something that moves, the NinjaTrader platform is free if one wants nothing more than replay. All they require is an email address of some sort.
And for those who are familiar with mean reversion:
TMI?
Looking at a chart on which no trendlines of any sort have been drawn is sort of like the burglary movies where the guy is trying to steal the big diamond that's sitting on a big pedestal in the middle of the room. He knows that there is an alarm which is triggered by the interruption of one or more of a series of laser beams which criss-cross the room. Unfortunately, he doesn't know where those laser beams are because they're invisible to the naked eye. So what does he do? He blows smoke into the room so that the beams become visible. Knowing where they are enables him to miss them and avoid setting off the alarm. Similarly, there are a variety of trendlines on your chart, even though you may not be able to see them. Blowing smoke on your chart will be of no help, however, so you'll have to be satisfied with a less-dramatic straightedge and pencil.
--Db
And while my use of freely-available online charting is a subject of great hilarity amongst the trolls, those who've followed me through my journals understand that I use this one and stockcharts and bigcharts to demonstrate to the beginner that there is a lot available for him to play with at no cost while he's trying to decide whether or not he wants to pursue trading. And if he is intrigued enough to move away from static charts toward something that moves, the NinjaTrader platform is free if one wants nothing more than replay. All they require is an email address of some sort.
And for those who are familiar with mean reversion:
TMI?
Looking at a chart on which no trendlines of any sort have been drawn is sort of like the burglary movies where the guy is trying to steal the big diamond that's sitting on a big pedestal in the middle of the room. He knows that there is an alarm which is triggered by the interruption of one or more of a series of laser beams which criss-cross the room. Unfortunately, he doesn't know where those laser beams are because they're invisible to the naked eye. So what does he do? He blows smoke into the room so that the beams become visible. Knowing where they are enables him to miss them and avoid setting off the alarm. Similarly, there are a variety of trendlines on your chart, even though you may not be able to see them. Blowing smoke on your chart will be of no help, however, so you'll have to be satisfied with a less-dramatic straightedge and pencil.
--Db
Last edited:
- Status