Price Action Strategies All Break Down

I have noticed one thing when developing strats is that intraday price action strategies ... they always seem to breakdown.
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Remember that most veteran traders see and understand those price action strategies and they will fade them.
 
Quote from Swan Noir:

Look at the 5 min CL chart from Thursday -- 9/19/13. There really is no point that you can possibly be compelled to get long -- NONE. You may not see a short that fits with your trading plan but from b1 to b66 the bulls case does not even come close to challanging the bear case. As they day progresses you become increasingly convinced that buying into the bull case can only happen if they show you evidence of trend and torque. At no point does that happen during the entire morning. It is your job to see that. The market is literally screaming to you that the bears control the market and that whatever tiny bits of bull strength that stick out are feeble at best and immediately smothered.

I repeat: It is your job to perceive that and to realize the path of least resistance is lower. The bears control every time segment. BTW, at this point, I don't even have a moving average on my chart. Except for the trend lines I draw as the day progresses the chart is clean. I don't want my judgement to be clouded ... I want to see what price is doing and only what price is doing. Others can benefit from more information but I have found it does nothing for me. I have no quibble with those that basically trade PA but use an indicator or two yet it doesn't seem to help me. They are still PA traders in my book.

As you approach the European close it gets more problematic for the bulls. Being long is uncomfortable (to say the least) and the chances of the bears becoming aggressive is high and getting higher by the minute. If they have some success the bids will begin to be pulled and the bears will become emboldened. You may call my desire to find a place to get short a hunch or an emotional response to what i see. Some may feel a need to see what their back testing shows in similar situations. Given that there has been no signs of exhaution (the morning trend had solid bars but nothing oversized) and no counter punch by the bulls the bears seem to sit quite comfortably. I believe the race is not always to the swift nor the battle to the strong but I also believe that is how you must bet it. There is plenty -- PLENTY -- of evidence that the bears are firmly in control. And absoloutely no evidence of bull strength -- NONE!! In 90 minutes of modest movement the bulls never made a serious attemp to buy against the trend -- again, ZERO ATTEMPT -- NONE!!

Not a single observation causes me to want to get long. I don't believe I am alone in that opinion and -- baring new information -- I like the short side a great deal and suspect those that trade more size than I do like it as well. I also do not like the long case at all and I am certain that unless new information unfolds neither do better traders than me. I had some family busiess to attend to on Thursday so I can't say these were real time observations. Most days general conditions are more balanced. On this day the bulls never exercized any control and those that have been trading more than a few months that could not see that plain as day need to reevalute. Setups only count after you know whether you see the bull or bear case clearly once you 30 minutes to an hour into the day. I define the day -- RTH -- as pit hours. In CL 9:00 AM to 2:30 PM. The open often has a different
dynamic and a different rule book.
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Thanks for the reply.

My only issue with this kind of trading is that you only know who is in control on trend days and even then you don't know when a trend reversal is taking place.

Also, i don't believe most active players even care about the intraday price as they view most of it as noise - hence even if bulls were in control a big short order could come in due to non-intraday reasons or participants with much longer time-frames.

Another factor will mean that you can't trade the open which is usually the most volatile and profitable time as you are objectively waiting to see what side is in control.

I used to be a discretionary trader for years but i cannot control my emotions and i can stop over-trading/revenge trading - i find your method will lead to both. I traded similar to the ideas you represented in your post, it can be done but the margin for i error in my case was razor thin.

Moreover, the reasons you give for entering a trade are purely based on observation of a chart. Now it will depend on what time-frame you are viewing. Please tell me what your edge is? Based on your description i don't see any outline or definition of a trend or edge.

I hope this type of trading works for you as you might be a great discretionary trader, however i am a failed discretionary trader and once i started automating stuff i realized how random most of intraday trading really was.
 
Here is another pattern/intraday noise/trendline/S/R price action system i created which also breaks down prior to 2007.

It has no correlation to previous system and it was designed for the highly efficient ES market (i don't ever intend to trade it on anything but the most efficient markets).

It only trades shorts and again it was another one of my discretionary models which i could never have patience to trade. It is based on sound reasoning and logic based on my many years of sitting watching and trading ES as a discretionary trader (don't know if it has an edge but simply plays of market character).

I don't know if i will trade this because it break down on cash markets again prior to 2007 so i don't know if it was completely curve fitted.
Zero slippage again as all limit orders. Trade though set to 1 point and checked manually through all entries and exits to see if data and entries/exits were correct. Max 2 contracts when low volatility.


Results - would anyone trade this?? Less than 500 trades! Initially designed during my 2007-2008 discretionary trading period hence it was designed to love volatility:
 

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Quote from Dhalsim:

Results - would anyone trade this?? Less than 500 trades! Initially designed during my 2007-2008 discretionary trading period hence it was designed to love volatility:
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Yes, I will include it among my systems most definitely.

Every year profitable, nice PF, great equity curve, very limited drawdown, and you also say it is based on some particular form of market character and it makes logical sense.....what more can I ask for!!!

Send me the code+logic behind it by email if you don't mind...I will be able to offer a much better critique then and possibly I will also make some money. :)
 
If you are looking at the day in question and can't see that you only want to trade the bear side (at any point in the day) then there is little point in me continuing. At no point -- I REPEAT --AT NO POINT in the day did the bulls exert any control. Those that want to believe it must be witchcraft to see that are coming from a place I don't get.

Also, I didn't say you couldn't trade the open only that is is a different playbook. I wish you well in all your ventures.

Quote from Dhalsim:

Thanks for the reply.

My only issue with this kind of trading is that you only know who is in control on trend days and even then you don't know when a trend reversal is taking place.

Also, i don't believe most active players even care about the intraday price as they view most of it as noise - hence even if bulls were in control a big short order could come in due to non-intraday reasons or participants with much longer time-frames.

Another factor will mean that you can't trade the open which is usually the most volatile and profitable time as you are objectively waiting to see what side is in control.

I used to be a discretionary trader for years but i cannot control my emotions and i can stop over-trading/revenge trading - i find your method will lead to both. I traded similar to the ideas you represented in your post, it can be done but the margin for i error in my case was razor thin.

Moreover, the reasons you give for entering a trade are purely based on observation of a chart. Now it will depend on what time-frame you are viewing. Please tell me what your edge is? Based on your description i don't see any outline or definition of a trend or edge.

I hope this type of trading works for you as you might be a great discretionary trader, however i am a failed discretionary trader and once i started automating stuff i realized how random most of intraday trading really was.
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Quote from gmst:

Yes, I will include it among my systems most definitely.

Every year profitable, nice PF, great equity curve, very limited drawdown, and you also say it is based on some particular form of market character and it makes logical sense.....what more can I ask for!!!

Send me the code+logic behind it by email if you don't mind...I will be able to offer a much better critique then and possibly I will also make some money. :)
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Lol the strategy to the human mind is quite simple but to code it was a pain in the ass - it ended up being very complex and difficult but it taught me pretty much that any discretionary type trading can be coded as long as enough time and effort is taken (as well as skill).

I have been running it on sim for past 6 months and it performed similar to back test. However, i don't have much faith in this strategy because it does not perform on other markets and breaks down on cash markets. If we get some nice volatility i will be increasing size quite dramatically.

I will be trading this live very soon and if it does not perform like it should in the first year then i will send you the code - then we can both lose money :D
 
Quote from Scataphagos:

Of course they do. Swing up, swing down... trend change.

Incumbent on you to get a "read" on the market and risk appropriately.
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Scat, I think what dalism was trying to say about breaking down is that if any set of rules is working for weeks, months and years, with no regard to trend change(what is that anyway? Its subjective andf ther system should pick it up by giving you lets say more shorts than longs,where as the month before it was spitting out more longs than shorts)

No I think what he is asking(and I would like to know too is...) eg-If you have a strategy where you go short every time price breaks under the 72ema and cover every time it comes back thru the 13ema, using only the 60m candle charts,why would that be a winner for 45 weeks and then suddenly it stops being profitable. I actually used a very similar system that did that.

Or for price action as he talks about fractals....why id you have a system that if price on a 15 min chart breaks thru the 618 fib and keeps on going and has also shown 2 green candles in a row on the daily candles prior to this, and it works for a year, why would it suddenly stop working?

Trend shouldn not matter as anysystem you have will tell you the trend by the predomninance of shorts or longs in the system, and you can even use that as a filter and just take the trades that predominate or....take only the long trades if above the 20 sma and the shorts if below it on whatever time frame you choose.

Second way to ask the question is with my real life event: A guy in Russia sold me a piece of software that let me take any stock and using daily charts only would never let me know the oarameters he used, but I could tweek the backtesting of the stock by choosing 1-10 numbers to tighten, loosen and make minor tweeks to the parameters without knowing what they were and it was so much fun because it would always show the stats for the past yrs trades with those parameters I picked, showing me win % of trades and also annual return. I tried to stick with stocks that were easy for the software and had way over 50% winners and also at least an 805 annual return. Every one of them failed so badly I had to abandon them in forward testing just out of frustration. So what I am asking is(like I think the other fellow is)...............why does this always happen?
 
Quote from pakua42:

....why would it suddenly stop working?...
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Please see this thread ... http://www.elitetrader.com/vb/showthread.php?s=&threadid=276521&highlight=malkiel

Quote from pakua42:
....... Every one of them failed so badly I had to abandon them in forward testing just out of frustration. So what I am asking is(like I think the other fellow is)...............why does this always happen?
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Please see here ...
http://www.priceactionlab.com/Blog/2011/09/curve-fitting-and-optimization/
 
Quote from pakua42:

...why does this always happen?
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It does not always happen. It surely happens when you curve-fit to the past with 1 - 10 parameters.

Quote from pakua42:

I tried to stick with stocks that were easy for the software and had way over 50% winners and also at least an 805 annual return. Every one of them failed so badly I had to abandon them in forward testing just out of frustration.
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From the same blog Abattia quoted:

http://www.priceactionlab.com/Blog/2012/06/fooled-by-randomness-through-selection-bias/

Your method/system must work on [nearly] all stocks. When you selected the ones that are "easy" you introduced selection bias. This is equivalenet to confusing luck and skill:

“How our minds confuse skill and luck.”

I hope these will help.
 
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