S/R trading strategy

PetaDollar

PetaDollar

I trade support and resistance (S/R) by buying S and selling R. I have been thinking lately about some tweaks to my entry methods. I believe I am currently leaning a little too far towards "confirmation" and losing a little too much "entry price". Plus, I find myself being small size for the best trades, and big for the mediocre and lousy ones, opposite of the desired effect.

Supposing I have a potential R zone between prices 100 and 102 of some futures contract. Currently I will short it if I see a candlestick with a shadow in that zone, or if the market makes a lower high (LrH) in that zone. The problem is on great trades (see today's "t-notes today" thread in Misc. Futures) that bounce right off the zone, I only have one entry and therefore small size.

What I am now going to test is just keeping a standing limit order entry in the zone. Then, when I get the current entry signal (a candlestick shadow or LrH) I will use that to add. If the market blast through the zone without reversing, I will be small size. When the trade works, I will always be big. I will of course get some small losses that I didn't have before, but my winners are going to double... seems like a good deal. Actually I have the stats to back it up now so I'm sure it's a good deal.

So, I'd like to hear what y'all think about this. Also, if you care to share any other cool ways of trading S/R (many ways to skin a cat, right).
 
Hey:

There are two fixes for your problem, one to make entry contingent primarily on price rather than the candle formation
and second, when/if you get filled to have a plan to scale into your position.

It is harder to effect the first fix because most traders like the psychological crutch of seeing the candle form before pulling the trigger. One way of making the transition easier is to establish a price target and look for a candle formation as confirmation of your bet.

As for position sizing, scaling in is in my opinion the best way to take advantage of a move. The homework you have to do is to reassure yourself that once you start to scale in, you have a move that will persist. If you analyze the market you are working with, eventually you can come up with rules that work for you. For instance, you may discover that once price moves in your direction for a point or a point and a quarter, chances are it will continue for at least 2 more points. You establish your scale in rules around that discovery.

Good luck,
Lefty.
 
Quote from peterfigliozzi:

I trade support and resistance (S/R) by buying S and selling R. I have been thinking lately about some tweaks to my entry methods. I believe I am currently leaning a little too far towards "confirmation" and losing a little too much "entry price". Plus, I find myself being small size for the best trades, and big for the mediocre and lousy ones, opposite of the desired effect.

Supposing I have a potential R zone between prices 100 and 102 of some futures contract. Currently I will short it if I see a candlestick with a shadow in that zone, or if the market makes a lower high (LrH) in that zone. The problem is on great trades (see today's "t-notes today" thread in Misc. Futures) that bounce right off the zone, I only have one entry and therefore small size.

What I am now going to test is just keeping a standing limit order entry in the zone. Then, when I get the current entry signal (a candlestick shadow or LrH) I will use that to add. If the market blast through the zone without reversing, I will be small size. When the trade works, I will always be big. I will of course get some small losses that I didn't have before, but my winners are going to double... seems like a good deal. Actually I have the stats to back it up now so I'm sure it's a good deal.

So, I'd like to hear what y'all think about this. Also, if you care to share any other cool ways of trading S/R (many ways to skin a cat, right).
More...

Are you manually spotting S/R or using something else. I do some of that myself with TI, but was just curious about your approach.
 
Hey

Take a look at the attached chart. You can see that I have established a channel with lines at 1162.5 and 1165.5. There are plenty of entry points just inside these lines. On the other hand if you wait to see the candles form, you get entries well inside the lines and your risk to reward ratio wont support the bet. When you have low volatility and range bound action like today, price based entries and exits provide better bets, and of course it helps if you can read the book and look at other cues like the tick, trin and volume.

Lefty
 

Attachments

Hello Peter,
The way I see a trading range, is that you have 2 basic reversals.
1 is a single candle type reversal where you have some kind of a long tail with a small body. This can be ether a single candle or a blended candle. (Does that make sense?)
An entry here is to take advantage of a V type reversal, where you have no retest of S/R.
The retest, if there is one, is an opportunity to add to your poss., and also take advantage of the potential BO of the other end of the trading range.
With this you can exit a portion at a "target" and the other at a success/failure of S/R.
If there is a BO, you can reenter your additional poss. on a ret.

Of course all this has to do with which side the overall pressure is coming from to get yourself positioned on the correct side of a potential BO.

PS. cool, look what happened while I was typing
 
Quote from peterfigliozzi:

So, I'd like to hear what y'all think about this. Also, if you care to share any other cool ways of trading S/R (many ways to skin a cat, right).
More...

Intraday Treasury futures; when the market is bidding and trades up through a previous level, buy the retrace to that level or within a tick.
when the market is offering and trades down through a previous level, sell the retrace to that level or within a tick.
Wait for the market to tell you if its bidding or offering by first trading through a level. It will retest breaks.

To do this you must be able to get a feel of how your market trades so you can have some confidence as to if the market truly has an underlying bid to it or vice versa has a heavy offer to it. This takes screen time.

Now here are your intraday levels,
overnight range,
previous high, low, settlement pit contracts.
initial balance(todays first hour range 8:20-9:20 eastern).
previous days upper and lower value areas(pit) from MP.
todays pit open.
Key highs and lows from 30min(or greater) day session charts.
todays high and low, if not the same as one of the above.

and I watch these levels with 10 or 15min charts of 5yr, 10yr and 30yr contracts as well as 5min(or lower) charts of TNX and TYX with levels drawn and market profile of Pit contracts.

Candlesticks seem irrelevant except maybe to spot a big reversal day on a daily chart but if you traded that day then you know what happened anyway.
 
Quote from peterfigliozzi:

I trade support and resistance (S/R) by buying S and selling R. I have been thinking lately about some tweaks to my entry methods. I believe I am currently leaning a little too far towards "confirmation" and losing a little too much "entry price". Plus, I find myself being small size for the best trades, and big for the mediocre and lousy ones, opposite of the desired effect.

Supposing I have a potential R zone between prices 100 and 102 of some futures contract. Currently I will short it if I see a candlestick with a shadow in that zone, or if the market makes a lower high (LrH) in that zone. The problem is on great trades (see today's "t-notes today" thread in Misc. Futures) that bounce right off the zone, I only have one entry and therefore small size.

What I am now going to test is just keeping a standing limit order entry in the zone. Then, when I get the current entry signal (a candlestick shadow or LrH) I will use that to add. If the market blast through the zone without reversing, I will be small size. When the trade works, I will always be big. I will of course get some small losses that I didn't have before, but my winners are going to double... seems like a good deal. Actually I have the stats to back it up now so I'm sure it's a good deal.

So, I'd like to hear what y'all think about this. Also, if you care to share any other cool ways of trading S/R (many ways to skin a cat, right).
More...

Peter

The flaw I do see is if you see the (LrH) and add it could turn out that the mkt will make a higher high after this false retracement when hitting resistance and you will have a maximum position on.

PS I have found many of your psychology posts helpful.
 
Thanks everyone for your replies. And I must say, it was an all-star cast of professional traders who replied. There is enough info there for the properly inclined beginner to sit down with Excel and work something really nice out. Anyway I will answer you guys in chronological order.

Lefty: I haven't done any studies on point-based adding. I will look to see if I can find anything.

Dt: Manual by looking at the 60m chart, plus a calculated band around yesterday's high and low. The width and placement of the band depends on the market and personal objectives.

Sulong: The v-shaped reversal with no re-test is the one that had given me trouble, because I was always small. I think Lefty's point-based adding will fix the problem.

m_c: Most of the intraday levels you mentioned I have not yet considered. I have put them on my task list. The "previous level" test you talked about I have been studying for a few months now. Actually I use it to place stops, but not yet for entries, still have to work a few things out. Re: candlesticks, I have found shadows on a 5 min chart in a s/r level to give entries that beat random entries very well.

monee: glad to have helped with the psych posts. Well, any time you add at a worse price you risk losing more. So you can't flaw LrH adds for that reason alone. The question is, if you add in a certain way do the times you win big outweigh the extra losses incurred (esp. compared to just going in full size).
 
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