Techniques for Day Trading the ES, NQ, YM, MES, MNQ, and MYM

[kaizer]

Volpri,

There is the question about one aspect, which is uncovered here (or I missed it, if so could you be so kind to point me). SL placement for the ‘recovery trade’. Let’s say, for example, a trader estimated the intermediate context and decided it is down move. He sold the PB, averaged position, but the SL triggered (SL1). Per your tactic he should to double size (of averaged) to cover the loss and may be go in the money. Lets suppose he found the entry point for long, or may be, reversed with double size at SL1 point. Now the position is maximum loaded. So, this max size trade needs it’s own SL – SL2. What tactic do you use for SL2? In addition, what do you do if double trouble happens – SL2 triggers?

Here is my reasoning about SL2.

Firstly, market does not care about our recovery issues, so we must place the SL2 according the PA and not base it blindly on our desire to cover loss.

The SL1 can trigger because of these reasons:

1/ the intermediate context is really wide range, not down move, so trader did mistake

2/ the intermediate context is down move, but the low probability event happens and bulls attacked the PA successfully

If the 1/ is in the play and trader identified it IMO he must drop the doubled position as soon as possible because he went long near the top of range. Than the appropriate tactic is to trade the range or wait for the new directional context if trader does not trade ranges. However, if the 2/ is the case, still we have the probability that bears return and reverse PA according the context. Yes, its rare event (in case of correct context estimation), but trader must have the plan for this. In this case, IMO, trader should sideline and wait because high volatility chop takes place and bulls and bears are equally strong. But, the exact tactic to place SL2 is still unclear to me…

 

[volpri]

Volpri,

There is the question about one aspect, which is uncovered here (or I missed it, if so could you be so kind to point me). SL placement for the ‘recovery trade’. Let’s say, for example, a trader estimated the intermediate context and decided it is down move. He sold the PB, averaged position, but the SL triggered (SL1). Per your tactic he should to double size (of averaged) to cover the loss and may be go in the money. Lets suppose he found the entry point for long, or may be, reversed with double size at SL1 point. Now the position is maximum loaded. So, this max size trade needs it’s own SL – SL2. What tactic do you use for SL2? In addition, what do you do if double trouble happens – SL2 triggers?

Here is my reasoning about SL2.

Firstly, market does not care about our recovery issues, so we must place the SL2 according the PA and not base it blindly on our desire to cover loss.

The SL1 can trigger because of these reasons:

1/ the intermediate context is really wide range, not down move, so trader did mistake

2/ the intermediate context is down move, but the low probability event happens and bulls attacked the PA successfully

If the 1/ is in the play and trader identified it IMO he must drop the doubled position as soon as possible because he went long near the top of range. Than the appropriate tactic is to trade the range or wait for the new directional context if trader does not trade ranges. However, if the 2/ is the case, still we have the probability that bears return and reverse PA according the context. Yes, its rare event (in case of correct context estimation), but trader must have the plan for this. In this case, IMO, trader should sideline and wait because high volatility chop takes place and bulls and bears are equally strong. But, the exact tactic to place SL2 is still unclear to me…

There always exist the possibility that the doubled up and reversed position could also incur a loss. That can happen. Nevertheless, any SL at least for myself is a PA SL. Others use a monetary SL. That is, they will be willing to lose x amount of dollars and that is it. The way I see it the doubled up position is like any other trade. It needs a SL also and it needs the appropriate SL. If the SL is too tight it will also end up being a losing trade. The main purpose of doubling up and reversing direction after exiting a previous loss is to recover that loss of the previous trade in about 1/2 the movement. Since BE (break even) point is about 1/2 the size of movement of the previous loss and that 1/2 distance traveled is about all that is needed to get to BE, the ODDS favor getting back to break even very quickly. But again the double up trade should use the appropriate PA SL. I just trade it and manage it like any other trade as if there were no previous trade with a loss. It is simply a bigger size trade. Once BE is reached on the doubled up trade then a second decision has to be made to either exit at BE or hold for more profit. And that profit will come quickly if the reversed move is strong. Once price moves the total distance of the previous loss trade (from the loss trade’s entry to it’s stoploss that ended the trade) the double up reversed directional trade, will be in a handsome scalpers profit. The benefits of at least keeping in one’s mind the strategy of doubling up and reversing are:

1) One’s original premise was wrong so the traders SL was hit and the trader is now correcting that and is now going WITH the market and NOT fighting the price action. WE have to remember the market operates in a 40% to 60% band as Mr Brooks says. That means that on 90% of the bars going long has a 40% to 60% chance of being right and making a profit and going short on the same bar has a 40% to 60% chance of making a profit. On the other 10% of the bars which are usually strong BO’s, the odds go up out of this 40% to 60% band to 70% to 80% and in rare occasions to 90% that a trade will be successful. Think through this statement for therein lies the secret of doubling up and reversing directions.

2) It is a logical play not a revenge play. The story is told that Soros once bet heavily on a certain direction and he was insistent on that it was the correct direction and he told a friend so. However, as it turned out price went in the other direction, against Soros. Sometime later his friend saw him and asked him how did it turn out for him on the trade. He responded “I made a lot of money on that trade.” His friend wanted to know how that was possible given his previous directional insistence. Soro’s simply responded “I changed my mind.” So, obviously Soros must have exited his previous position once the market proved his premise as wrong...he must have reversed directions and may have even doubled up on that trade, but I don’t know that. The point here is “He changed his mind.” The market is what changed his mind. He had a premise, and took and play based upon that premise, but when the market PA proved that his premise was wrong he simply changed his mind.

3) by doubling up and reversing one is getting higher odds in their favor because they are taking the path of least resistance and PA is showing that path. See, wide range bars tend to show the path of least resistance. Otherwise, the bar would not be a wide range bar. A scalper has to be nimble and quick to make a logical decision. If a scalper position was proven wrong by a wide range bar indicating selling/buying pressures then he must act quickly. Time is of essence.

4) Time. By doubling up and reversing the trade usually a trader can get back to at least BE thus recovering the previous loss, in LESS time, than the amount of time it would take to recover by reversing direction, but using the same position size as the previous losing trade used.

So in summary, reversing and doubling up is a mechanism to recover a loss and often end up with a good profit, in less time, less movement, and with higher odds. One has “changed” their mind and gone with the mind of the market so to speak. The path of least resistance. It is a logical decision not an emotional decision (as in revenge trading). It must be based on logic and finally it must have an appropriate SL, like any other trade. Said another way, it must have a “give up” point if the doubled up trade were to prove out wrong also, causing the trader to get whipped around. Preservation of capitol is paramount in using a doubling up reversing direction technique.

The context in which doubling up takes place determines much. The entry setup to do so, the placement of the SL, the placement of the PT are all contingent upon the larger and immediate context. For instance, if the previous trade was a loss because the least expected event happened the the profit target should probably be a measured move target. When the unexpected event happens we often see a measured moved. In such a case the doubled up position has become, not only a recovery of a previous loss, but a very profitable trade.

Hope that explains things. Gotta go as I am getting the motorhome ready for a trip. On the road again. I like traveling....seeing new things...experiencing life in other parts...

 

[kaizer]

Hope that explains things. Gotta go as I am getting the motorhome ready for a trip. On the road again. I like traveling....seeing new things...experiencing life in other parts...

Sorry but still not clear about the stop loss for the recovery trade. It is neither PB trade nor MTR, it’s more like V-shape (or rotated V-shape) reversal. This trade is taken before the context established, I mean the context, which is opposite to the context of the averaged trade exited with loss.

may be it is better to provide the example of the real PA of this situation than discuss abstractly?

 

[volpri]

Sorry but still not clear about the stop loss for the recovery trade. It is neither PB trade nor MTR, it’s more like V-shape (or rotated V-shape) reversal. This trade is taken before the context established, I mean the context, which is opposite to the context of the averaged trade exited with loss.

may be it is better to provide the example of the real PA of this situation than discuss abstractly?

Maybe this will explain. This is price action on a 5 min chart yesterday 2-5-2021 MES or ES whichever. Same thing.

Price opens good size gap up then proceeds to close the Gap. Once it closes 70% or more of the of the gap I would be expecting it to continue down. Especially, since the two PB's made as it was closing the gap were minor PB's and few bars. Once would expect at least another leg down after the entry short on that last bear bar. Instead price reversed up. The unexpected event. That is the first hint of a measure move back up. When the unexpected happens look for a measured move. The reversal is a good size bull bar closing almost on it's high. Immediately the next bar opens and is a bull bar. Not good for the short position so the trader covers the short with a loss. There is too much buying pressure. There is a gap between high of the reversal bar and the high of the next bar. So, the trader exits with a loss and is now looking to reverse and go long. The second bull bar is bigger than the first bull bar and also closes high. That puts odds in favor that we will see more move up. The bulls are buying, the bears are covering, and price will likely continue up to a measure move.

So the trader goes long (doubles up) just prior to Price reaching a 50% PB (purple lines) of the prior bear opening move. The SL for the doubled up position HAS to be at the bottom of the reversal bar (red line). That is the correct PA SL.

As you can see and annotated on the chart.. 1/2 of the prior losing move and the trader is back to BE. The full losing distance move of the prior trade and the trader is in the money. A measure move gives a handsome profit. Since there was absolutely no PB's on the reversal up I would not take profits at BE nor at the full distance of the losing move but would wait for a measure move up which was about at the top of the actual move. That is, MM from the bottom of the reversal to my entry extrapolated to the top. The MM move.

As an added note price is staying above the 2 MA's after the reversal. Shows more buying pressure.

Maybe that will explain it in graphical terms.

 

[volpri]

I want to show a few more concepts from the same chart. If going short on that last bear bar (bar 9:15) before the reversal expecting a bearish continuation and not a reversal then a trader has to decide where to put their SL for that short trade. SL’s if based on PA should be logical.

For such a short entry there are three logical SL placements for a scalper IMO. The lower single red X is the first and smallest SL. The next SL for the short trade is the two red X’s. The final and widest SL (for a scalper of 1 to 8 points in ES or MES) is the triple red X’s. Although some traders would dare to place a SL at the XXXX or even the XXXXX red x’s, I likely would not. Why? Three reasons:

1) As a scalper the latter two wider SL’s are so wide that if price hit them and continued on up the trader would have a large scalper loss on his hands.

2) Should his super wide (for a scalper LOL) SL (i.e. xxxx or xxxxx) be hit the odds of seeing a decline large enough to then double up in order to recoup that loss are now smaller, because the large reversal has “eaten” up much of the move up already, and price would MORE likely go into some sort of range behavior.

3) Even if he did get a decline large enough to reverse and double and come out with at least BE, it would likely take time. A scalper like myself generally doesn’t want to wait around the whole session trying to recoup a loss. If the doubling up trade was close to the end of the session he might even not see BE before the close.

I would not trade this price action with my SL above the first PB in the bear move down (i.e. XXXX) or above the high of the day (XXXXX) simply because I am basically erasing, or at minimum reducing the probabilities, of any doubling up technique working. The odds of a doubling up technique succeeding are thus smaller on the wider SL’s.

Again why? Because the reversal would have retraced so much of the initial bear move down that it might become difficult to see a sufficient decline after the reversal to then exit my short I have held onto that is in a paper loss and go long.

However, as it turned out AFTER THE REVERSAL in THIS case. There was indeed a decline large enough to double up, reverse, and go long near the bottom of the decline and get back the loss incurred from either of the wider SL’s. See the blue arrows for that decline followed by a rally that would have gotton a doubled up position recuperating the loss from either XXXX or XXXXX, AND back in the money. In this case, it would have worked using XXXX OR XXXXX as a SL then taking the loss and reversing doubling up, recuperating the loss, and back in the money BUT it is a more risky endeavor to make such a bet. Price could just trade down further than it did after that first blue arrow making any attempt to double up, a long wait. So the trader would be sitting waiting for an attempt at to execute doubled up entry in order to recoup the large loss from XXXX or XXXXX. In this case, the whole thing happened early in the session thus giving enough time to exploit a delayed doubling up tactic. But it could be hard to pull off if in the latter part of the session.

Therefore, to keep the odds in my favor that I will be able use a successful doubling up technique, one that will get my loss back QUICKLY I would prefer using SL’s X or XX OR XXX for that short trade on bar 9:15. QUICKLY. WHY? Because there will be many more trading opportunities in the session. I don’t want to be sitting around waiting hours to recoup a loss incurred from XXXX or XXXXX SL’s.

The green X’s are doubling reversal entries for the red X SL’s being hit. The yellow circle is the likely doubling up entry I would take EVEN if I had used the single red X SL. I likely would not double up and reverse at that single green X (which is also where I would cover the short from bar 9:15 had I used the tightest SL). I would wait to see the close of bar 9:25 to better gauge the strength of the reversal, before doubling up. However, a more aggressive trader would not only cover his short position at the single green X but would also reverse and double up at the single green X, after their SL at the single red X was hit.

Anyway, maybe this explanation will explain somewhat the technique of doubling or even tripling up to recoup a loss and getting back in the money QUICKLY. Tge idea is to achieve recuperating the loss so in a much smaller favorable size move, than the size of the move that resulted from the SL being hit (i.e. size of move from entry to hit SL). Tripling up would require even less of a favorable move than doubling up to be back in the money, after being subjected to a loss. But that all depends upon one’s account size and risk tolerance for doubling or tripling up. I can tell you this. IN the ES or MES because of the way it moves and the way it forms PA patterns and setups IT IS HARDER to recuperate a loss using the SAME position size as the trade that resulted in the loss.

Finally, when choosing where to place a SL a trader should also be conjecturing (DEFINITION...form an opinion or supposition about something on the basis of incomplete information.) about “WHAT IF” scenarios in terms of recuperating a loss by doubling up after a SL is hit. ESPECIALLY, in terms of probabilities that the doubling up will likely succeed. That entails being able to properly read the context of PA and assign probabilities to a successful doubling up reversal trade. As a scalper I certainly don’t want to be doubling up to recuperate every single loss I get while trading. Often times it is better to just suffer the loss, put it out of ONE’s mind, and look for the next opportunity to trade. Doubling or tripling up requires assigning probability that the effort will pay off. Remember, ALWAYS a trader is looking for a relatively high probability that trade will render at least sufficient move to get the loss back.

As always these thoughts are for only for testing out on a SIM. As a matter of fact none of the potential trades in the chart were actual trades that I took. I am just discussing some concepts on SL placement and how I view doubling or tripling up to recuperate a loss should my SL be hit. I am using a static hind sight chart to explain my viewpoint as I can’t very well explain them on charts that are in the future and have not yet happened. So be what it may this is the scoop on how I view SL placement and recuperating losses on this particular day the chart was drawn out via the participating traders big or small.

 

[volpri]

Now the final questions becomes where do I place the SL for any of the double up positions? In short, I like a PA SL, not a set monetary one. Using a PA SL keeps me more in tune with the volatility that is most recent in the last few bars. For each of the double up entries here is the SL I would use.

The strong counter trend movement pushing price up through 20 EMA starting from bar 9:20 up to bar 9:50 is replete with gaps. By that I mean high of one bar is higher than high of the previous bar. Gaps between the close of one bar and the close of the previous bar. There are gaps between the low of one bar and the high of the bar two bars back. There are no actual PB's in the countertrend move. There are successive bull bars. No bear bars. Tails on bottom. All this means strong buying pressure. Any subsequent PB, while it may be deep (because of profit taking and late exiting bears waiting on a PB to reduce their losses), will likely just be a bull flag and the move up will continue because PB will be profit taking from the counter trend move and the resumption will be new bulls entering the market. By that third bull bar from the bottom of the counter trend move many of the bears have given up while bulls are still buying and together that will likely push price higher.

So, any PB will be profit taking as the bears will not be keen to go short again after seeing such strength. So that test of the low, while a bit deep, was bulls taking profits along with late exiting bears exiting their shorts and wiping the sweat off their foreheads as they got a chance to reduce their losses. You can bet they ain't they ain't chopping at the bit to short again.

 

[volpri]

Remember, the correct initial SL for BO’s is just below the bottom or the lowest part of the first bar that leads to the BO bar. As the counter trend reversal move continues the SL is still at the bottom. Once there is a PB followed by another BO of the PB (i.e. another major high) then the initial SL can be adjusted to the low of the PB, which in effect is now a swing low.

Why is the SL in this v shaped reversal at the bottom of the first bull bar of the reversal? Because by the second bull bar we are in a BO. A BO of what? A BO of the bear magenta colored trend line. In BO’s the initial SL should be at the bottom of the first bull bar in the BO movement. Once we get a swing low (as in this case of a bullish reversal) PB followed by a PB BO OR the move just continues enough to be unlikely that any PB would undo the move, in either case, the SL can be adjusted. In a bull move that reverses into a strong V BO of the bull trendline the principles apply too. Just reverse the concepts.

 

[kaizer]

Volpri, your last post forefronted what i reasoned before read it. Every time we make trade, our trade is BO of some level, and we shoul ask yourself 'in BO of what level we are' and place SL accordingly. The exception probably is the trading in wide range context, that's why range trading is more advanced stuff than PB trading in well defined trend.

 

[padutrader]

thanks for this........i know how difficult it is to explain trading techniques...as must brooks......thank less job.

this is really a good addition to Brooks book-whether intentionally or not, i do not know.....but the HUGE number of examples explained in Brooks 'mother tongue' is pure gold


but i am saving this for weekend reading......needs full concentration.

i wish i found this a lot earlier.

 

[volpri]

Keep this in mind. Every bull bar is a trend as well as a BO. Every bear bar is a trend as well as a BO of something. You may not "see" that trend or the BO on the TF you are looking so you may have to dial down to a smaller time frame to actually see either one but they are there.

Every doji bar is a one bar TR. Again you may have to go to another TF to "see" the range that composes the doji. A doji on say a 15 minute chart is a TR on a 5 minute chart. Not an established TR in the sense of 20 bars of sideways movement (as 20 bars sideways movement is the definition of an established TR) but a doji on a 15 min chart is sideways TR BEHAVIOR on a 5 minute chart. On a 2 minute chart it probably would be an established TR of more than 20 bars.

Remember, any pattern within any larger context can have micro nested patterns in it. TR behavior is sideways movement that will have rallies and declines..overlapping bars..race up...race down. It can have triangles..flags...wedges...micro trend lines in it ...micro channels ...etc depending on the broadness of the TR. All those are tradeable patterns. In effect, they are nested patterns within the broader TR. Even a larger wedge pattern can have micro wedges or micro channels nested in it. Larger triangles can have nested triangles. This doesn't mean a trader takes every nested trade but the opportunities abound for a scalper. Often you will see that in some of my trades I take a one point scalp off a nested pattern within a larger pattern. Then the moves continues and you may think; why didn't he hold for more profit? Maybe I wanted to lock in one point. Maybe sweet pea is calling me for breakfast and I gotta jump. There can be different reasons for taking small nested pattern scalps. Maybe the market is moving so slow it is like watching ink dry and I reason best to lock in 1 point in the ES than no points in the ES. I don't consider anything less than 1 point in the ES a viable scalp. While technically and traditionally it is a scalp I am not interested in taking less than a point. I consider scalping 1 to 8 points in the ES as scalping and in times of more volatility maybe 12 points. So, I look to trade patterns I think will render me profit within those range of points. Regardless of what price does after I lock in my profit. As a scalper I want abundant trading opportunities...quick action...high win rate. In some cases, I am risking more than I make. That is not mathematically good to do all the time but it can happen in the scalping world. Just best to not make it the "modus operandi." IN most cases my initial SL may be larger than my profit but in the end what counts is my "actual" risk. That is the risk I suffered before I exited my trade with a profit. The initial SL is necessary as I don't know what price will do 5 minutes or 15 minutes from now. I know it can give me a profit or it can take my money and there are probabilities for winning or losing. In addition, the internet may go down....price may move quite a distance against me before it goes for me. Or not! So, I have an initial SL but when I tally the trade reward to risk ratio I figure from my actual risk plus one tick. For me that is what is meaningful. Anything else was just a "paper" risk point in case it was needed but it was not what was actually risked on the completed trade.

I may have an initial risk of 3 points to capture 1 point as most traders see risk to reward but in actuality I only endured 2 ticks of total risk before I captured the one point profit. That is the market went against me 1 tick (plus one tick more for exiting to get out) then it immediately went 1 point (plus 1 tick to get out) in my favor. To realistically make 4 ticks in the ES requires a 6 tick move. Thinking about this; does it make more sense to say I had a terrible risk to reward as my initial risk was 3 points or does it make more sense to say the trade rendered me a decent risk to reward? I ACTUALLY risked 2 ticks to make 4 ticks. That is 2:1 reward to risk. I made twice as much as what I really risked. Anyway, a different way of looking at things as concerns the reward to risk ratio.