The Importance of Simplicity

Quote from Girlpower:

I seem to be up late again...

Ok Guys. Something I've picked up on is the question of retracements being better entry points, so I've pulled up some charts and been looking back.

It seems to me that there could be something in that, but rather as a sepparate strategy. the problems as I see it is that there is too much of a trade off between

1) A break following through and missing it completely because your waiting or having to join it at a higher level than you would otherwise have done.

2) It being a reversal and finding yourself taking the opposite position in the market (thus creating a loss)

3) It sticking and being more profitable than the original trade would have been.

So what I'm asking is basically for some ideas that will help me to put a strategy together that will have a good probability of success, that can run independantly of any other strategy. (obviously this requires commiting more of the fund than I currently do, but there is nothing wrong with having several strategies on the go at the same time...)

Natalie
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If you miss a long breakout and it starts retracing, you can just enter a trailing buy stop and enter when the stop gets hit. Do it backwatds with a trailing sell stop for the short side.

Also, 61.8% retracement is the last stop. Anything farther than that is probably a full blown reversal. So entering at 61.8 is considered a low risk point, because if it gets taken out you don't want it anyway.

You are going to get screwed if you try to trade both breakouts and retracements. One or the other. The secret to simplicity is consistency.

The system doesn't make money, the market does. Keep switching systems and you can hit every wrong turn.

The system starts with you. It's within you. You build the system around who you are.
 
Quote from Sophomore Jinx:

The thing is, the deeper this thread has gone, it's seemed as though the initially simple methods being described - the more they're discussed - are revealed to have an additional qualifier, or another timeframe, something to check against. Thus the confusion about who's trading off of a 15-minute bar, but crosschecking it against a 30, or a 5-minute MA crossover...or TRIN...
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Don't confuse "simple" with "easy". And definitely do not confuse it with "mechanical". Discretionary trading does not have to be complicated nor does it have to be difficult. But you do pick up a few things along the way with regard to probability that prevent you from engaging in certain trades.

For example, you may find that days that gap up more than 3% and that are not Trap Gaps are likely to trade in a very limited range for the rest of the day. I'd hate to put that into rule form, but it's something to consider. There's also the question of how price moves. Does it meander aimlessly in an almost drunken stumble, or is there an energetic and ongoing battle between bulls and bears over the direction of the price?

Certainly rules will be a great help to you, and since you already have some experience under your belt, you ought to be able to determine when to apply them and when not. But they probably won't be mechanical enough to enable you to avoid exercising judgement altogether.

On the other hand, who knows what Natalie and Mike might come up with . . . :p

--Db
 
Ok - It tried to go through the bottom line then rebounded back. the 1015-10.30 bar gave me a nice down trend line and as soon as I had a lower low on that bar, I went short on the basis that it was a pretty good probability that it would now go through the bottom having failed to get anywhere near the top of the range.

Each bar after that just confirmed with lower highs and lows, and when that really started to fail sometime after 12.00, I looked for a good price to get out on.

That simple really. I took 7 points from that trade.

Natalie

p.s. Hope this has come out right - it's very late here. I've just paraphrased my daily record.
 
Quote from bobcathy1:

Reading this post....
How did we get so complicated a set of answers in a thread about "simplicity"?
Gee whiz:confused:
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Oh, that's simple... because only one mind can create simplicity.

Yet all the ideas added to the original simplicity of Natalie and Mike are not necessarily bad, they just need to be synthesized properly. For instance, 60% FR. They would work great and I have pictures to support this from the last week sessions. At least three if I recall it correctly. S/R, trends within first 30 min bar would be of great help too and could be used to anticipate the breakout. Same with pivots as they tend to lie within the first half an hour bar.

The thing is that if you want a system such as Natalie's or Mike's then you already have it. It is a breakout system and it works. You don't need anything else. However, if you want a different system, the one I am advocating here and still working on, the system that would anticipate a breakout and by doing so would give you an opportunity for greater profits then you need to incorporate other elements and they have already been mentioned here: S/R, 60FR, MA and SAR (to determine the trend), pivots, Sperandeo's 2B patterns (I guess that's the correct name), etc.

In other words to determine where the breakout would possibly occur (on which side of the first 30 min bar) and how strong it could be you need to look deeper into the structure of the first half an hour bar.

Sorry, don't have the pictures ready yet, but they were meant to support the validity of 60 FR (I have some pretty examples), S/R, trends within the first 30 min bar (nice too), pivots within the first 30 min bars, etc., surprisingly all the elements already mentioned here, which only suggests that they are of some value and indeed they are. I will try to post them tomorrow here or I will put them up on a special page, where I will try to present my synthesis, which may take longer. The page would be better because the thread is getting a little unwieldy...

Of course, as I said, Natalie's and Mike's systems are OK on their own, but with the additional elements used properly they can be even more powerful. They can anticipate breakouts where it is possible. I am not saying it is always possible to do that. After all it is not always possible to know if a breakout is real or fake. However, if the first 30 min bar is long enough, 5-7pts at least for ES, then its internal structure and/or the structure of the next 30 min bar have enough information to give us a good idea of where to expect some sort of breakout or, what's also important, where not to expect it.

I really don't think the things are getting more complex, they are just different, not worse, and perhaps for some, not better. The simplicity, just like the beauty, is to some extent in the eye of the beholder. A more complex system can still be very simple if its rules are clearly identified and if they suit the tastes of its inventor or user.

But Mike's and Natalie's systems work, perhaps they just need to stick to them.

OK, that's it from me, going to a party now... take care.
 
Quote from Girlpower:



Wally,

I can send you the 24 hours continuous file for ES if that would help. The one I sent was the closest match to normal trading hours that I have.

This file would be OHLC midnight to midnight and not just 8-30 till 4. let me know if you'd like it. Sorry, I can't extrapolate the 8.30 to 4 data...

Natalie
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Thanks Natalie, will talk about it later.

Take care...
 
Just one to illustrate my point. This is the first half an hour bar and what follows as seen in detail through 3 min bars. The date is 11/05/02.

You can see that there is a nice uptrend (the 5 MA (red) crosses over 13 MA (violet)) and there is a clear pullback (retracement) to the 60 FR level from the top of the first half an hour bar. The dashes are SAR points. They show that the pullback does not violate the uptrend. This is also confirmed by the fact that the 5 MA stays above 13 MA and all bars close over 20 MA (blue). After that we have a 7 pts advancement. Forget the fact that the SAR is now above for a while, it does not matter as long as the MAs are arranged properly. It is a weak breakout, but if you entered at the 60 FR you would have scored 6-7 pts, anyway. The 7 pts could have been anticipated too through the ABC rule. I will explain this rule at some other time.

Going to bed now, will return to this either here or on my page.

Good night...
 
Quote from wally_:

Just one to illustrate my point. This is the first half an hour bar and what follows as seen in detail through 3 min bars. The date is 11/05/02.

Good night...
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Sorry, wanted to attach a gif file, but it did not work out... Don't know why. Tough, too tired, will try again later in the morning.
 
Someone mentioned here Vic Spearandeo. He indeed is a great master of simplicity, but also one of those who did a great deal of decent statistical research. A lot can be learned from his books unlike from the books of Tom DM and other 'New Age' researchers who so much abhor statistical analysis.
 
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