Rule of 10 Journal

[jagmot]

Quote from volente_00:

On a side note, did you get out of your swing short trade on Fri ?

Yes I did. I closed out the last contract short near the eod at 44.25. I thought the bailout of FRE and FNM was a possibility although I didn't think the market would gap this high with that type of news.

 

[Pekelo]

Quote from volente_00:

We don't want to see hindsight entries on a rule that does not work.

I am sorry, but for testing I am not going to stay up all night long, and I mentioned earlier that overnight trades should be automated.

On the other hand we would like to see some trades from YOU....

I think the first overnight short from 76.5 would have been stopped out before dropping but the next one from 80.25 gave us 7 points getting out now at 73.25, so the 2 trades together still 4 pts gain...

Edit: Apperently got out too early, still dropping...

 

[MandelbrotSet]

While looking back over the Journal to get a good grasp of exactly what volente_00 is talking about, I've compiled a list of the posts that he made while attempting to explain exactly what the Rule of 10 Trading System was and how it should be used to trade the ES e-mini's.

In my final analysis, while I believe that volente_00 is a good discretionary trader, the Rule of 10 most definitely is not a good trading system.

 

[MandelbrotSet]

volente_00's Rule of 10, Volume I

Volente's first posting in this Journal about his "rules" ... so far, so good.

Quote from volente_00:

I have never changed my rules other than using a 3 point stop instead of 2. KISS, 10 point intervals, from either a reaction low or high. The reaction high yesterday was 91 ish so the next signal was 81. The last reaction low was 1281, so your signal was 71. This simple rule gets you in the trade, How you manage it is up to you. Please keep in mind this rule does not fare well on a trend day when a huge move is made. Luckily those days do not happen very often. With your 10 point target jagmot, you will probably see many winning trades turn into losers versus scaling out some at smaller gains and getting a much higher winning percentage.

Here is where we introduce the concept of the "rule of 9-11" (first mentioned by Pekelo in this Journal).

Quote from volente_00:

This is actually a valid concept. I have posted before where I call this strategy the 9-11 rule.

And here we have the rule of "never leting a win turn into a loss" (um, sounds good)

Quote from volente_00:

If you apply that same simple concept to rule of 10 trades then the end result gets even better as your winning precentage climbs. Of of the most important rules in trading is never let a win turn into a loss.

Here volente_00 admits this is actually a discretionary system.

Quote from volente_00:

I'm starting to see clues as to why many get confused by the signals. It seems to be interpreted differently by others. Your stop to me was right near the r10 signal from the previous reaction high of 86.25. In regards to the trend, had you taken the long signal this morning and trailed the stop, then you would not have 2 stop outs on the day for -6. FWIW, I don't think this strategy can be programmed due to multiple variables and human discretion on when to trail stops, etc.

In this post volten_00 mentions the importance of the “power of belief”

Quote from volente_00:

If you believe it then you will see it

In this post, voltente_00 mentions the importance of sticking to his 3 pt loss rule when taking ROT trades on trend days and getting stopped out (I guess he can’t trade the trend, huh?).

Quote from volente_00:

I think the problem is when you have a trend day, the reaction lows and highs are hard to point out compared to a chop day when it skys and dives all over the chart. As I said in the beginning, this type of contrarian trading and this strategy will not fare well on a trend day unless you are on the right side from the start. This is why I stick to a 3 point stop out rule for the day.

 

[Pekelo]

Quote from Pekelo:


I think the first overnight short from 76.5 would have been stopped out before dropping

Checking it again, my broker's chart says the high was 79 before the drop, so the stop loss was untouched, giving a 5+ gains, depending where one would have taken the gains...

 

[MandelbrotSet]

volente_00's Rule of 10, Volume II

Here is where volente_00 first mentions the no shorting on gap downs or going long on gap ups.

Quote from volente_00:

From the reaction high of 85 on cash


http://finance.yahoo.com/q/bc?s=^GSPC&t=1d&l=on&z=m&q=l&c=


I avoid shorting on gap downs or long on gap ups. You can't be a partial contrarian if you wanna play my style. "Contrarians never die, they just fade away" props to Thunderdog

Now volente_00 is talking about using volume as a confirmation

Quote from volente_00:

I use the extreme moves, volume can confirm.

He also mentions that it helps to look out for the “program traders” (as if he knows how, LOL)

Quote from volente_00:

program trading contributes to the volume to create the skys and dives. just more footprints to look out for.

And here volente_00 mentions the 3:30 (or later afternoon) reversal, when the bonds close.

Quote from volente_00:

I flat out suck at late afternoon trade. I usually look for reversal around 3 pm est when bonds close or shortly after. Then look to fade the move from there.

Here volente_00 mentions “T Day and the 10:30 Crew”. I don’t know what they have to do with the Rule of 10, but I’m sure there is some relationship.

Quote from volente_00:

db on cash signal


The rest is up to the T day and 10:30 crew.

Here volente_00 admits that it’s really just a “coin flip”.

Quote from volente_00:

It worked the first time, will it work again ? That is a chance you have to decide.

 

[MandelbrotSet]

volente_00's Rule of 10, Volume III

NOW, THIS IS THE FIRST POST WHRE I HAVE EVER SEEN VOLENTE_00 INTRODUCE THE CONCEPT OF MOVING AVERAGES INTO THIS SYTEM. I guess there’ll be more to come with this revelation.

Quote from volente_00:

As I have warned before, you do not want to be on the wrong side on a trend day. What did the red and blue say for today as it happened ?



"Although this system is deceptively simply, it is very clean about keeping a trader on the right side of the trend."


http://www.cbot.com/cbot/pub/cont_detail/0,3206,1560+17731,00.html

… and here is volente_00’s response after Old Trader point blank questions his use of moving averages.

Quote from volente_00:

It does not conflict at all. It keeps you from taking long signals on a downtrend and short signals on a up trend. The crossover is not used for trade signals. It is only used to keep you from getting run over from a train. KISS.

In this post volente_00 shows specifically how to use the Moving Averages in conjunction with the Rule of 10 Trading System (you learn something new every day).

Quote from volente_00:

THEY ARE NOT USED FOR ENTRY.

They are used to keep you on the right side.
They are used to help determine when to trail, get flat or reverse.
You can not use a lagging indicator for entry or you will always be chasing.

Ah, I’ve been looking for this one.

Here is where volente_00 gives the exact SMA settings that you should use when interpreting the Rule of 10 trades.

Quote from volente_00:

What did the 9,18 ma say about today and long signals ?

That’s it for now.

But I think that’s enough.

Good trading.

 

[Pekelo]

Quote from MandelbrotSet:

the Rule of 10 most definitely is not a good trading system.

I mentioned this earlier, but it is NOT a trading system, but an entry rule. Without an exit rule it is not a system... As it is clear from this journal, we have at least 3 different kind of exit rules being used... Kind of makes it interesting to compare...

Edit: I guess we missed a long signal (too busy posting) at 1269, it bounced up to 1273 before falling further, so a breakeven or better.

 

[MandelbrotSet]

Just to let you folks (and Magna) know that I'm not here to just trash talk, here's a tool you can use if you really do want to trade the indice using the Rule of 10 (I obviously don't, so I won't be using this tool).

It's called the Swing (High/Low) indicator and it is available in a number of different software packages. This chart is from NinjaTrader for anyone who wants to know.

It's purpose is pretty obvious.

It can be used to objectively measure the swing highs / swing lows (based on the timeframe that you are trading), something that is crucial if you hope to trade the markets using this sytem, and FTR, an element which is sorely lacking in this Rule of 10 Journal.

Good trading.

 

[MandelbrotSet]

Quote from Pekelo:

I mentioned this earlier, but it is NOT a trading system, but an entry rule.

It's not even an entry rule.

It's a tool that can be used to measure the markets progress, and, in hindsight, determine whether it is trending or operating in a trading range.