The Importance of Simplicity
- Thread starter Corso482
- Start date
Wow, that made me think....smell the wood burning? 
It is said that one shouldn't begin trading a system when it is winning, but rather when it is losing. Although as has been discussed ad nauseum about randomness, one never knows when that '50 losers in a row' run will occur. Notwithstanding, a method producing a win-rate, for example, of 70% is "due" after 2-3 losers. We have to believe that, otherwise we would never pull the trigger for fear that 'this might be the beginning of a huge run of losers.'
That being said, in my own experience - and I'd wager in the experience of many others - we tend to jump in with our new methods during the winning streak....during that time when our confidence is riding high because "this baby is an ATM."
Unfortunately this is exactly when we should not be jumping in.
Maybe rule #2 should be: To avoid rule #1, wait until the new method is losing to apply it real time.
That's probably easier said than done.... like most rules.
It is said that one shouldn't begin trading a system when it is winning, but rather when it is losing. Although as has been discussed ad nauseum about randomness, one never knows when that '50 losers in a row' run will occur. Notwithstanding, a method producing a win-rate, for example, of 70% is "due" after 2-3 losers. We have to believe that, otherwise we would never pull the trigger for fear that 'this might be the beginning of a huge run of losers.'
That being said, in my own experience - and I'd wager in the experience of many others - we tend to jump in with our new methods during the winning streak....during that time when our confidence is riding high because "this baby is an ATM."
Unfortunately this is exactly when we should not be jumping in.
Maybe rule #2 should be: To avoid rule #1, wait until the new method is losing to apply it real time.
That's probably easier said than done.... like most rules.
In a sense, this is part of the rationalization for trading retracements rather than breakouts. Rather than buy the breakout as Mike and Natalie do, wait for price to pull back and buy the retracement. Theoretically, if price reaches s/r, you'll have a much tighter stop before it resumes its movement.
There is, unfortunately, trickiness here as well. For one thing, you must have substantial momentum in order to get out of that "hook", but breakouts require momentum as well. Plus you should have at least a deep enough retracement so that you can reach breakeven before you reach the top (if long) of the retracement, but not so deep that the retracement suggests too much weakness.
As usual, no easy answers. But anyone who's backtesting the breakout strategy may as well backtest the retracement strategy at the same time.
The retracement strategy, by the way, is as common as dirt. Everybody has a variation, including Teresa Lo, Linda Raschke, and the Pristine folks. Different gurus may apply different shades of lipstick to it, but it's still the same pig. Which doesn't make it any better or worse a strategy. But it's nothing new, regardless of what a particular guru may call it.
--Db
Yes. I have retracements incorporated into another basic strategy I use, although I never really thought of it in that way...
Again, pretty simple to use, and also quite profitable. The problem with that strategy of mine (not really related to what your saying btw) is that it only comes into play from time to time, but when it does, it certainly helps keep the account healthy.
Natalie
"Different gurus may apply different shades of lipstick to it, but it's still the same pig. "
Whereas I thought I had heard them all - I realize now I am a rookie. That is hilarious. True, but hilarious.
As for the retracement, that is by far my favorite trade. Whether or not it's to a moving average, S/R, fibs, or the 3-5 bar pullback, you see that retracement over and over again. Personally, I think retracements have a higher probability of success - empirically speaking - than the breaks.
I guess to prove that idea, one has to ask how many breaks retrace before moving on - not well-phrased - but the idea is there.
Whereas I thought I had heard them all - I realize now I am a rookie. That is hilarious. True, but hilarious.
As for the retracement, that is by far my favorite trade. Whether or not it's to a moving average, S/R, fibs, or the 3-5 bar pullback, you see that retracement over and over again. Personally, I think retracements have a higher probability of success - empirically speaking - than the breaks.
I guess to prove that idea, one has to ask how many breaks retrace before moving on - not well-phrased - but the idea is there.
excellent point.
this is why imo :
- fake break out will 'retrace', since it was a fake!
- most real break outs do retrace too.
the stronger the break, the less retracement. but it's very rare that it just takes off. gaps might be an obvious exception (and they often retrace of course. but some just don't look back).
odds favors waiting for the pullback.
it reduces risk too.
the hard question is 'how much pullback ?'
to that I chose to answer : 'scale in the pullback and let the market decide how much is right'.
tntneo
this is why imo :
- fake break out will 'retrace', since it was a fake!
- most real break outs do retrace too.
the stronger the break, the less retracement. but it's very rare that it just takes off. gaps might be an obvious exception (and they often retrace of course. but some just don't look back).
odds favors waiting for the pullback.
it reduces risk too.
the hard question is 'how much pullback ?'
to that I chose to answer : 'scale in the pullback and let the market decide how much is right'.
tntneo
Depends on the market environment. This is a tactic that I had been using routinely, but which was less and less successful as the price of the indexes fell. Before, breakouts were routinely faded, making a retracement strategy almost a necessity unless one employed very wide stops. And the velocity was nearly always there - unless one misread the chart badly - to carry the retracement past the top of the hook and on into another leg.
But as daily ranges contract, there seems to be more pressure building up. This tends to make breakouts (from the daily range) more successful as they tend to be more of a release than of a ploy to trap newbie traders who jump on breakouts.
This is all empirical, of course. I have no stats as support. But I'm sure I'm not the only one to have noticed that trading is awfully limp. Rather than definite peaks and valleys, you've got more of a general directionless meandering. This makes trading breakouts from coils and flags problematic as well, since the breakouts tend to be so apathetic.
And since this will go on for months, if not a year or more, I have to re-examine all of this to see what works best in this environment. I've tried the scalping route the last month with only marginal success, hardly worth the time and effort. So I'm back to looking at retracement/breakout tactics again. If I can't make them work, I'd rather just not trade at all until I get some sort of epiphany.
--Db
Hmmmmmmmmmm,
Well, I guess you guys have found a way to make money KIS. Currently, I look at, hold on let me count, 27 "things" + the spoos squawk, that give me a picture of what the next six minutes might bring in the ES and NQ. In fact, the more I understand the mechanics of the market, the more Holistic view I want of it.
True, I don't make use of all 27 at once, but I internalize all 27 at different points in time, and may key off of two or three for a particular trade. However, I have switched gears on what I key off of during the day. On occassion, once I get the "personality" of the "moment," the two or three things that I key off of may be completely different at different times during the day.
Oh well, carry on...
nitro
[disclaimer - there are "simple" ways to make money, and I know of these and use them. But even on those, they are hardly things that follow price movements in a system based on "indicators."
Well, I guess you guys have found a way to make money KIS. Currently, I look at, hold on let me count, 27 "things" + the spoos squawk, that give me a picture of what the next six minutes might bring in the ES and NQ. In fact, the more I understand the mechanics of the market, the more Holistic view I want of it.
True, I don't make use of all 27 at once, but I internalize all 27 at different points in time, and may key off of two or three for a particular trade. However, I have switched gears on what I key off of during the day. On occassion, once I get the "personality" of the "moment," the two or three things that I key off of may be completely different at different times during the day.
Oh well, carry on...
nitro
[disclaimer - there are "simple" ways to make money, and I know of these and use them. But even on those, they are hardly things that follow price movements in a system based on "indicators."
Well I threw in the S/R and fib stuff to disguise my little-known, double-secret, never-before-revealed fact that I use ma's to enter trades. And they make great spots to time retracement targets. And...it doesn't matter whether it is a 5, 15, or daily chart. They all offer break and retrace opportunities. Even the one minute.
That's why I use common indicators and common time frames. I want to see what everyone else is doing. The herd is only wrong at turning points, ie., tops and bottoms. For me, using obscure time frames and esoteric indicator settings disguises what the mass of money is doing. I don't want to blaze new trails, I want to ride the wagon train.... or gravy train!
Tntneo, I love that scaling in idea for the very reason you state. I might try that. I usually have a retracement target and wait for the reversal as it approaches that target, but many times the reversal move is so strong I miss the nice lower prices. Love that idea.
That's why I use common indicators and common time frames. I want to see what everyone else is doing. The herd is only wrong at turning points, ie., tops and bottoms. For me, using obscure time frames and esoteric indicator settings disguises what the mass of money is doing. I don't want to blaze new trails, I want to ride the wagon train.... or gravy train!
Tntneo, I love that scaling in idea for the very reason you state. I might try that. I usually have a retracement target and wait for the reversal as it approaches that target, but many times the reversal move is so strong I miss the nice lower prices. Love that idea.
There are no indicator settings since the thread so far is about keeping it simple, i.e., price bars and possibly volume bars.
As for "obscure time frames", I assume you mean out-of-the-ordinary time intervals, though neither really has anything to do with what the "mass of money" is doing. Rather they are concerned with following price action rather than being enslaved by the price bar.
If one wants to know what everybody else is doing and where real weakness lay, all he has to do is locate the last reaction high or low and draw a trendline. When those are violated, there is a high probability that the "mass of money" is moving or getting ready to move in the other direction. If not, one can always re-enter at a new high.
--Db