The 'Mother of All Advice' list!

[comagnum]

The one attribute a number of the best traders of all times have remarked on as their most significant insight is that their best trades will run hard right out of the gate. Because of this they exit a lot more aggressively on the losing trades and carefully layer on to their winners, usually after moves out of consolidations at higher prices from their prior position(s).

If there is a holy grail as far as entries anyway this is probably it. My risk mgmt is built on this principal - I cut losers aggressively and add to my winners carefully. I could care less about win rates but am fanatical about the avg profit versus the avg loss and being consistent with my trade frequency.

Novices take on way to much size (greed), cut their winners way to soon(fear), let their losers run way to far, trade against the trend, trade way to much, often fail to plan their trades in advance, lack having an actual written trading plan, and drift around always looking for their next entry signal. Been there done that!

 

[ironchef]

5. Enter long in uptrends and short in downtrends. Something more specific, here: especially if floundering, try to learn to look for good long entries during an uptrend and good short entries in a downtrend. It's certainly not the only way to trade, but it's not a bad one, and for most people it's probably a skill more easily mastered than many.

For us new comers, by the time we see and confirm an up trend in a chart, how do we know it will continue instead of reverses?

More time than not we are late to the game and are the one that left holding the bag. Any words of wisdom for us?

Regards,

 

[ironchef]

The one attribute a number of the best traders of all times have remarked on as their most significant insight is that their best trades will run hard right out of the gate. Because of this they exit a lot more aggressively on the losing trades and carefully layer on to their winners, usually after moves out of consolidations at higher prices from their prior position(s).

If there is a holy grail as far as entries anyway this is probably it. My risk mgmt is built on this principal - I cut losers aggressively and add to my winners carefully. I could care less about win rates but am fanatical about the avg profit versus the avg loss and being consistent with my trade frequency.

Novices take on way to much size (greed), cut their winners way to soon(fear), let their losers run way to far, trade against the trend, trade way to much, often fail to plan their trades in advance, lack having an actual written trading plan, and drift around always looking for their next entry signal. Been there done that!

I am going to post your comments on my wall.

Thanks.

 

[Sprout]

For us new comers, by the time we see and confirm an up trend in a chart, how do we know it will continue instead of reverses?

More time than not we are late to the game and are the one that left holding the bag. Any words of wisdom for us?

Regards,

When the decreasing volume of a non-Dominant retrace becomes increasing volume. This phenomenon occurs as the retrace becomes a reversal by being the new Dominant direction. Every single trend on any timescale can be traced to a two bar combination. The larger trends begin in areas of CCC (congestion, convergence and centering)

One possibility that you're late to the game is because you are looking at an incomplete dataset for confirmation. Also, you haven't trained yourself to 'See' into the open space beyond the HRE (hard right edge).

 

[ironchef]

When the decreasing volume of a non-Dominant retrace becomes increasing volume. This phenomenon occurs as the retrace becomes a reversal by being the new Dominant direction. Every single trend on any timescale can be traced to a two bar combination. The larger trends begin in areas of CCC (congestion, convergence and centering)

One possibility that you're late to the game is because you are looking at an incomplete dataset for confirmation. Also, you haven't trained yourself to 'See' into the open space beyond the HRE (hard right edge).

Thanks. A lot for me to digest. I am able to "see" one pattern but that does not happen very often and sometimes gave false signals. That is OK, at least now I understand what some of you folks are talking about.

I really appreciate you, among others, took the time to give us some coaching lessons.

 

[Xela]

For us new comers, by the time we see and confirm an up trend in a chart, how do we know it will continue instead of reverses?

I think the answer is "you don't".

There are simple things you can do, to try to strengthen the odds in your favour, such as avoiding long entries just below levels that have seen recent resistance (and/or more distant multiple resistance), but we never know, do we?

It's only ever a probability function.

Each time I enter a trade of any given type, I can't predict its outcome, or even the price's short-term direction, reliably, but this doesn't matter to me: what matters is that I can predict (and with a pretty high degree of confidence) the collective outcomes of my next 300 trades of that type, and along the way to that collective outcome I'll just have to accept the inevitable losers among the winners, however they're bunched/separated and whenever they appear.

On a brighter note, trends tend to continue more often than they reverse. Or, to put it another way, at any given moment, continuation is more likely than reversal (especially during the "early part" of a trend). We just have to know that we'll encounter some reversals, too, and manage our trades (stop-loss positioning/targets/exits/scaling) in ways that are likely to cut losses short and let profits run?

 

[learner2007]

The Mother of all PA/TA. Also called the DNA of price movement, and also The Dow Theory Reversal Pattern.

Last edited: Nov 12, 2015
#2 Nov 12, 2015Report
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[rin4et]

I think the answer is "you don't".

There are simple things you can do, to try to strengthen the odds in your favour, such as avoiding long entries just below levels that have seen recent resistance (and/or more distant multiple resistance), but we never know, do we?

It's only ever a probability function.

Each time I enter a trade of any given type, I can't predict its outcome, or even the price's short-term direction, reliably, but this doesn't matter to me: what matters is that I can predict (and with a pretty high degree of confidence) the collective outcomes of my next 300 trades of that type, and along the way to that collective outcome I'll just have to accept the inevitable losers among the winners, however they're bunched/separated and whenever they appear.

On a brighter note, trends tend to continue more often than they reverse. Or, to put it another way, at any given moment, continuation is more likely than reversal (especially during the "early part" of a trend). We just have to know that we'll encounter some reversals, too, and manage our trades (stop-loss positioning/targets/exits/scaling) in ways that are likely to cut losses short and let profits run?

I disagree with Xela. There are setups that have 80-100% probability of a winning trade. How do you know? With practice, experience and observation you will know. The rest of the lower probability setups you should discard because they are just gambling.
As for how far high price will go is something that is difficult to predict.
Volume helps to solidify the certainty. Also as Xela said it is important to get in early in the trend. The earlier the better. For some of my setups I get in the consolidation phase itself before the uptrend has even begun.
As the price moves higher in the uptrend the probability of entering a winning trade goes down until the peak where it will be a 100% certainty of a loss. Another benefit of entering early in when the price reverses you have enough room to exit the trade profitably instead of at a loss.

 

[777]

I disagree with Xela. There are setups that have 80-100% probability of a winning trade. How do you know? With practice, experience and observation you will know. The rest of the lower probability setups you should discard because they are just gambling.
As for how far high price will go is something that is difficult to predict.
Volume helps to solidify the certainty. Also as Xela said it is important to get in early in the trend. The earlier the better. For some of my setups I get in the consolidation phase itself before the uptrend has even begun.
As the price moves higher in the uptrend the probability of entering a winning trade goes down until the peak where it will be a 100% certainty of a loss. Another benefit of entering early in when the price reverses you have enough room to exit the trade profitably instead of at a loss.

Having positive expectation and managing risk while trading worthwhile volume is what is crucial to long-term winning.

One of many good thing Xela let's us know through her posts is that trades are probalistic and we would be wise view them that way. Perhaps I misunderstand, but it seems you are both on the same page with this.

It is not accurate to think that we should reject low probability trades out of hand- as in 30 percent winners is not enough. My apologies if I am misreading what you are getting at in this area.

The famous Turtle traders hit a very low percentage but won a fortune. Durring the internet bubble good breakout day traders did well with low hit rates. Conversely, I knew a winning scalper years ago who had a very high win percentage and made so much he retired.

It has been my experience that many traders and hedge funds with a high hit rate blew up. Their hit rates were massaged by adding unreasonably to losers until one fateful day ...

I must say that I do not know of a day trader with setups that produce a 100 percent hit rate but, of course, I do not know the results of every trader.

One thing is for sure, regardless of a traders hit rate, he must have an overall positive expectation on his bets- be paid more than his chances of hitting deem "fair".

Low hit rate situations can be good
High hit rate situations can be good
Low hit rate situations can be bad
High hit rate situations can be bad

 

[comagnum]

rin4net said:
I disagree with Xela. There are setups that have 80-100% probability of a winning trade

So you think you have 80-100% 'probabilities'? Shouldn't take that long to become on of the richest people alive. The best performing pros out there win about 50% of their trades - sure, some are closer to 60% for a while but they all eventually regress to the mean.