Pete's Place

Quote from peterfigliozzi:

No doubt, Ditch, but my conclusion is still the hard truth: *if* a trader is going to go for the smaller moves he *must* buy at the bid and sell at the ask.

Personally, I don't want to mess with that extra complication, and am sticking with the 10+ moves.
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Good points Pete. I tend to agree with the conclusion. But when you start focusing on the 10 point moves *exclusively* it necessitates having a full understanding of exactly how many of these moves occur in a day, and if you have setups that are capable of exploiting these moves profitably.

For instance, Friday's 10+ moves are as follows:
-17, +21, -11, +15.5

Whereas Thursday's 10+ moves are as follows:
+17, -12.5, +12

Here are Wednesday's 10+ moves:
-12, +16.5, -13.5

So as you can see, there are really only a few or handful of opportunities that fit this criteria on the NQ that occur on an intraday basis. Of course, just netting out on only one of these moves on a daily basis would be a good return by most people's standards, it gets more complicated when you not only factor in the bid/ask spread, but also the distance between the extremes of these moves, and where you are actually able to get an entry fill / exit fill based on the signals your method is giving. If you take 3-5 points out of each of the given 10 point+ moves on a given day, then you do very well, but there is also the pesky problem with losses eating into that total.

This is the reason why trading, for the most part, is a grind it out game, with the occasional "runner" that pads the bottom line.
 
Quote from peterfigliozzi:

No doubt, Ditch, but my conclusion is still the hard truth: *if* a trader is going to go for the smaller moves he *must* buy at the bid and sell at the ask.

Personally, I don't want to mess with that extra complication, and am sticking with the 10+ moves.
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One other bit of editorializing on my part. If you are shooting for 10 point moves AND are trying to buy the bid and sell the ask, and you really only have 3-5 opportunities each day (as stated in previous post), then you will end up missing many of your best trading opportunities over that one tick! And because the opportunities are limited, this will wind up costing much more in unfilled trades, than if you are buying the bid and selling the ask while scalping because there are so many more micro opportunities for the scalper.

So I would argue that the trader who focuses on 10+ point moves simply can't afford to be stingy about the bid/ask spread, just as the scalper simply must attempt to capture the bid/ask spread to be viable.
 
In today's market the majority of the intraday swings doesn't go far beyond 10 pts. When you exit there, you'll have a favorable exit point.
 
Worrying about bid and ask fills is telling me you are looking for a reason not to trade because of the pain of Pulling the trigger, unless you are a small point scalper....When your trustworthy system is what you watch for signals instead of exterior information, it eases the pain...Dow Jones, Nasdaq, Greenspan, are all irellevant when a mechanical system is working as it should and you have the proper stops in place.

Emini S & P 500 is a smooth market to ride...it can only go 3 directions...up..down..sideways...all provide opportunities to capture points....if a good system can give dependable entries on all markets, then why do you need external information? it becomes irrelevant....Study the right indicators long enough and u will see where the safe stops are at least 95 % of the time......usually 3 to 4 point stops are okay...When u scalp, u scale up emotion, risk, commission overload, hence the great concern about bid/ask fills/MINUTIAE BECOMES THE TRADER'S QUAGMIRE.... WHEN THE MARKET HEADS UP BUY...DOWN..SELL ...IT AIN'T ROCKET SCIENCE...
 
Here's what I'm trading now: I call it "Son of NPP" after NPP's Chaikin-Divergence method. It's similiar in that you enter on a Chaikin divergence, but different in several key ways: (1) trading 60 minute charts, overnight holds are common (2) trades are taken in the direction of the trend (series of HH/HL etc.) or during trendless times, but never against the trend. (3) using the 20 period hi/low (S/R) to key entries and exits.

Here are the rules:

(1) Determine the trend on 60 m chart. Defined by price action: trend up means HH/HL, trend down means LL/LH; trendless means it's not trend up or down.

(2) Enter on bounce off or near 20 bar high/low (both a rejected breakout, and 'not quite making it there' entries OK) with Chaikin divergence. Direction of trend or trendless times only.

(3) Target is other side of the 20 high/low channel. Hard stop set up 1/3 the potential gain.

Trade management:

(1) Cut risk, stops to B/E ASAP
(2) If there is a breakout of the 20 bar high/low against the trade, seek exit; not hitting the hard stop is considered success

Overnight hold conditions: Must have a decent profit, but less than half way to profit target.

That's it! Here's an "almost" setup from the japanese yen (JY) contract today. I didn't take it because it's a long setup, and JPY is currently trend down.
 

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Had a decent short of the Euro today as it made a textbook double top. Here's what it looked like on the 60 m chart. Note it bounced off the 20 bar high (1.2030) which corresponded to a prior S/R level. The Chaikin divergence is hard to see on this chart, see the next post.
 

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Here's the 5 min chart where the entry is pretty obvious.

As much as I really wanted to, I'm not holding this one overnight because it didn't make it below yesterday's high (where it closed). I like at least one s/r level between my entry and the closing price if i'm going to hold overnight.

There are a few more reasons to take profits and head for the door on this one. The volume pattern was increasing vol on the way up, decreasing on the leg down. Second, the Yen closed near the highs of the day.
 

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In a nutshell, here's what i've found in the last year about my intraday trading:

(1) trading S/R provides a slight edge (including rejected breakouts)
(2) trading trendlines provides a slight edge
(3) trading reversals properly provides a slight edge. And it took the most time to learn how to trade them properly.
(4) scalping in the direction of the trend provides no edge by itself, but the winners are correlated; meaning if you are good at identifying strong trends, these kinds of entries also have an edge

When I say "slight" edge I mean just that. BS ratio of about 1.3 if you've been reading along, meaning you buy 1.3 units of MFE for a unit of risk (for properly sized units, NQ about 3-5 points).

I also found that an important number is the bid/ask spread of whatever you are trading. Targeting moves under twenty times (!!) the spread introduces an additional difficulty-- you've got to buy the bid and sell the ask to make it fair-- or you've got to be that much better a trader to be profitiable.
So rather than deal with this additional difficulty, i've "zoomed out" to sixty minute charts.

To keep from being bored to death i've added a few markets. I chose EC and JPY since they are very active and look a lot like the NQ i've been staring at for over a year. It's done a lot of good so far, because my main problem in the past has been making too many trades. Now, at least I get the least crappiest trade of the three!

It's also nicer not to have to be glued in the cockpit when a trade is on. I had stop and limit OCA orders in, and I honestly didn't give a crap about watching it wiggle. Blah blah blah. We've all heard about the benefits and privelidges of longer term trading.
 
I had another breakthough which came from playing Hold 'em poker for the past couple months. In this game, if you haven't tried it, everyone starts with two cards (hidden to everyone else). The rests of the cards are delt face up on the table (5 more of them) and whoever makes the best hand out of the common cards + their own two, is the winner.

Some powerful starting hands are two aces, two kings, or ace-king (esp. of the same suit). And everyone knows this. However, there are a lot of "flops" which come and make these hands suck. E.g. you've got KK and an ace flops. Or you've got AA and the flop is 9=10=J=... all the same suit... and a different suit from both of your aces.

I swear for every time one of these great starting hands wins, I see two players bust out with them, because they keep betting with one of those disasterous flops.

For some reason, in poker I never had trouble folding KK when an ace flops. But in trading, when I'd wait and be patient for that great setup.. and it didn't materialize after I entered... I didn't have the discipline to get out. At least until recently... poker helped me see the light.

The other thing I learned: if you're going to play "tight" it means you've got to pass on some winners. By passing on winners, I mean passing on the questionable or mediocre setups which sometimes work well, but overall don't work very well. The poker analogy is playing Ace-5 offsuit, something like that. You just shouldn't play it under normal circumstances. Aces are great, and you will win sometimes, but mostly you'll be trounced by ace-king et. al. In trading, if I see a great reversal setup, but it's counter to the next longer term trend, i'll pass on it. I'll wait for a great reversal setup, that's aligned with the longer term trend, like today's with the Euro.
 
Euro trade almost the same as Friday's. Short, small profit, but didn't get past any "R" so I closed it up just now (near the end of the pit session, right??). Here's the big chart.
 

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