The ACD Method

[cipherscribe]

Quote from Shanb:

So seems as if you are still finding your footing? Some people like to trade high beta names. Others like to trade choppy etf's..like me . Finding whats comfortable to you is of utmost importance!

Do you have a framework for your trading? entering into pullbacks, entering through levels?

I'm listening to the thread, using ACD as a framework for the overall bullish/bearish sentiment, and entering at areas I feel are out of balance. This may be a continuation, or on a pullback.

 

[DT3]

Quote from kinggyppo:

I would guess that the 8 and 13 tick value is not for the daily but the 45 minute opening range. Not sure how they derive that. Regarding your second question I assume you mean using 45 minutes as an opening range. If you think about it that is a pretty long time, there was some discussion of this earlier in the thread. I like to scalp so ten minutes on spy is a LONG opening range for me. So I would answer no to your second question, what makes sense to you logically? and what timeframe are you trading? if you are scalping spy for .20 or .30 cents then you want a tight opening range maybe 2-5 minutes. Also there is a difference between an opening range trade and the ACD method. The ACD A and C values are derived from X opening range period, you may want to look over the book again. At the end of the day you have to derive an A and C value that you are comfortable with and passes the test of logic for your trading sytle..........

Just started reading the book so I may be a little confused. A and C values are calculated using the ATR of only the opening range and not the daily range?


What I was referring to in my second question is if you can use the stock market open of 930 as the standard open for all futures products regardless if they have an earlier pit open..

 

[Maverick74]

Quote from DT3:

Just started reading the book so I may be a little confused. A and C values are calculated using the ATR of only the opening range and not the daily range?


What I was referring to in my second question is if you can use the stock market open of 930 as the standard open for all futures products regardless if they have an earlier pit open..

What markets are you referring to? All futures markets open at different times. If you can be more specific what products you are trading. The grains open at 9:30 central time, an hour AFTER equities. Crude and natty open 30 minutes before and do A LOT of volume before stocks open. Gold and Bonds have huge moves before stocks open. Currencies make 80% of their moves over night. Sugar, coco, cotton, coffee, cattle all have different hours and are not even correlated to stocks. Maybe I am not understanding your question. Are you only referring to index futures?

 

[Shanb]

Quote from kinggyppo:

here is a range chart for cl set to .10 increments, you can use this for scalping based around acd or a price target, lets say you use a .10 or .30 cent stop, just a different way of looking at the data on the screen.

Check out this spread king!

VNQ-SMH....the trend is your friend

 

[Shanb]

Quote from cipherscribe:

I have just moved away from spreads, and trading direction. Very small at this stage, but like my post last week, its more of an instructional development, rather than the explicit goal to make money. What do I trade? As per the advice within this thread, I'm looking for high liquidity stocks that can move enough such that my profit exit is less than a good leg within the trend, exiting before EOD

Here are my trades from Friday

Haven't you ever heard of the phrase, "scalp for show, spread for dough"

 

[kinggyppo]

Quote from DT3:

Just started reading the book so I may be a little confused. A and C values are calculated using the ATR of only the opening range and not the daily range?


What I was referring to in my second question is if you can use the stock market open of 930 as the standard open for all futures products regardless if they have an earlier pit open..

The first premises is that the opening range is statistically significant. Fisher estimates that is the high/low for the day around 20% of the time. You then look for what's called an A up in which the stock or commodity
spends a certain amount of time over the a value which is plotted in advance based on a volatility measure. There is only one A up per day. In the example given in the book when the price of crude reaches 25.77
and A up is made and you go long crude there. The A value is plotted in advance based on a proprietary indicator. In this thread we have figured out that the calculation being based off of some percentage of the average true range of the product. Personally I like using 20% of a 10 period average true range. There is no set in stone answer for the average true range and and time period to use. I wouldn't doubt that different traders for his firm use different values as well. In prior discussions on this thread, we came to the conclusion that low volatility will give you fairly tight A and C values, with the opposite for volatile markets. If you look at Bollinger bands you will see a similar phenomenon. I would refer you to the "know your ACDs " chapter of the logical trader.

Your second question is difficult for me to answer, in general the 930 Eastern time open is critical for many commodities has more volume is traded during normal business hours. However, one could argue in the ES for example that the overnight Globex high/low is important. Again, this goes to your trading style and also the timeframe you are using. I would use the pit open as you stated for most markets. The Nikkei for example opens at X time in Japan, I would translate that to New York time, and use that as your open. I hope I haven't confused you further. I find the basic ACD method to be a little confusing at first, I think I have read the opening pages over 100 times. Remember he is giving you a complete trading system with entries and exits that are rule-based so take some time and try to get a good working understanding of the system before you commit real capital. Maverick is our resident expert here and has a lot of useful commentary regarding the system.

 

[kinggyppo]

average true range

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_true_range_a

 

[forex_for_life]

Quote from cipherscribe:

Thanks for clarifying Mav,

I understand the distinction, and I am coming to terms with the 'execution' presently. Its tough, since I personally think that the success in the execution has alot to do with one's conviction of their strategy. You need to 'know' before you execute, and you cannot 'know' without having actually traded a few thousand times. Hence the Paradox.

Whats your thoughts on trading drills specifically designed to train execution, and nothing else? Strategy is great, but if it stops you from learning to execute (ie keeping you on the sidelines for the majority of the trading day), a 'holy grail' strategy might actually be a hinderance to someone with poor execution skills.

A goal, of say, 10 wash trades per day, focusing on tight stop losses would help with execution. Cutting losers is a major problem for inconsistent traders, as is 'avoiding being stopped out' (from an earlier post of yours). So forget about any strategy, enter a position where you feel you might not be stopped out, set a tight stop (tight enough to be able to afford the exercise for an indefinite period), then exit as soon as your 'right', and move onto the next trade. No emphasis on Pnl, no 'letting winners run', focus only on execution.

Being execution practice, it has to be 'live' trading with an appropriate position size relative to your own account, so you know your trading. 10 trades a day - 200 trades per month - that's alot of exection practice.

I've been lurking this thread for a long time. It's as many great post as there are daily trading opportunities. I quoted the post above particularly because this is how my mentor assisted me w/ becoming an executor and he used a modified version of the ACD method to do so.

He was very well-known several other forums and had more than proven his trading abilities real-time on numerous threads w/ numerous systems (live calls). As a result, he always had people asking him to be their mentor. So what he'd do to weed out the jokers and chokers from the brokers was have them trade the modified ACD method for 4-6 weeks. If there was ANY deviation from the rules and it wasn't a justified reason such as technical difficulties, then he'd cut you off and the there'd be no more chance for mentoring. You'd have to report to him everyday and he'd check your results against his own. At the end of the week, you had to send him a trading statement. He'd check this against his own. If there were discrepancies beyond minor price differences because of different brokers used, again, cut off and no mentoring. At the end of the 4-6 week process, he'd dub you "graduated" and from there forward, you were a colleague w/ whom he'd befriend and share most of the knowledge he had on trading as well as other aspects in general living. He was a very wise, successful, honest, had shared his live trading statements numerous times and not once could anybody ever call bullshit on him and prove it to be true.

Now, I stepped up to the challenge back in October '07. I decided to trade the London open but am in the NY timezone so I was up at 2:30 a.m. EVERY morning trading this strategy for that 4-6 week period. At the time and up til that point, he stated that only 2 people had successfully completed the program: myself and one other Spanish guy (mentor was from Spain) who was a family friend he knew outside trading that wanted to have a go at it.

I can post both the other Spanish guy's as well as my own statements for that period. Believe them or don't, I can personally vouch for my own. It's a small screenshot of time, I know but it was a HUGE triumph for me at the time because I had NEVER trade ANY strategy for an extended period of time. Hell, up to that point, I was scared to death of executing but had all the ideas on the world, like Mav said he's seen time and again.

To be honest, after I traded it for that 4-6 weeks, I decided I'd come back to it later because I thought I could come up with something better (foolish newbie). Recently, after much fruitless searching, I happened to come across the old statements and began to wonder why I ever stopped dealing w/ it. I'm just now getting back to trading actively after a 1.5 year hiatus. I have since gone out and bought "The Logical Trader" and got a good ways through it. I'm not sure I trade the method as intended since my mentor never had me use the A / C lines and instead had me trade the break and close of a bar over / under the trading range. I digress...

Edit: Don't have the statements with me at the job. Will post them once I get home.

 

[kinggyppo]

good post forex, I would draw your attention to the discussion way back in the thread regarding vol levels in the opening breakout. low vol is going to give tight A and C values, high vol gives you larger A and C values. This is the point Mav was making that volatility is the key. The values themselves will adjust with changing vol and you can further refine this based on your risk tolerance. Think about if you are trading a breakout method you don't want your stop too tight. This is why I say when the mkt has high vol you have to widen your stops and lower amount of contracts. This can be proven mathematically, in short low vol look for breakouts/breakdowns, high vol look for reversion to the mean.

 

[Maverick74]

Hey Forex, you were asking me a while back when my next meeting is, we'll be having dinner and drinks two weeks from tonight in Lakeview if you want to join us.