The Trendline -SPY- Daytrader

Quote from fan27:

Hey Trend Fader,

I used to scale out of positions until I read "Trade your way to Financial Freedom" by Van K. Tharp. He discourages this method and I decided to crunch the numbers myself. I couldn't come up with any realistic combination of wins and losses in which it was financially better to scale out. I now use a 2 bar trailing stop for SPY on the 1 minute chart and it seems to work OK.
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I read that book many times over. Van Tharp also discourages daytrading.

I think Van Tharp's book is more geared to system traders and longer term traders than intraday traders...

I dont necessarily have a Multiple-R or some kind of neat expectancy when daytrading. I just trade what the market gives me. I try to keep the stops in place and hold onto the winners as long as possible. By taking partial profits this allows me to ride out the winners as long as possible. It also tends to reduce risk as your position gets smaller and I find it easier to deal with.

WHen I swing trade... its a completely different beast. I use much of what is mentioned in Tharp's book.


--MIKE
 
To further clarify my strategy... I want to go over in detail a few of the qualifications of a trendline break.

Normally.. I wait for the 10 min bar to finish then I place a market order. So I first wait for the 10 min bar to complete then only do I place an order.

I do this to avoid whipsaw. The hard part of doing this is that sometimes it breaks the trendline so much that it becomes overextended.. and I wish I entered before the completion of the 10 min bar. If this is the case.. I might go with half a normal position because the risk to reward diminises, or just skip the trade altogether. That is price you have to pay in order to get higher accuracy. Personally, I would rather sacrifice missing a lot of trades in order to have higher accuracy. Its mainly for psychological reasons.

If you were to just enter every time a trendline was broken by the tick you would be chopped up to death with losses.

Sometimes if the setup is so ideal and I want to be aggressive.. I might take the trade as long as their is a 1 point penetration of the trendline based on the ES chart.

Also... I prefer volume to increase on the trendline break bar. The simplest method is just to make sure that volume is greater for that 10 min than the previous bar.

On avg. there should be between 0-3 trades per a day. 10 trades a week is ideal.

--MIKE
 
Here is another tidbit..

When I look for the setup my primary chart is the 10 min chart.... another way to play the trendline break is to look for it on the 10min chart and trade it on the 5 min chart... and wait for the 5 min breakout bar to complete.

Often this will allow you to enter a bit earlier.. instead of waiting for the 10min bar to complete...

So draw a trendline on the 10 min chart.. when it starts to break the trendline.. flip the chart into a 5 min chart and trade it..

The reason I just dont trade off the 5 min chart directly.. is because there is just too much noise.. and there is a high chance of getting whipsawed.

This is just another variation of the things I look for..

Hope everything makes sense... When I post the trades I do each day.. things will start coming together...


--MIKE
 
I have been getting some emails asking on how exactly to draw a trendline...

From my experience there are many different ways to draw trendlines.. chances are 2 people that see a chart will draw different trendlines in different places...

On of my favorite techniques to make it simple and more consistent.. is simply to use a line chart and first draw trendlines based on that ( basically you would be drawing trendlines on close only). Look for 3 peaks or valleys on the line chart then connect them. Sometimes the peaks/valleys will be clear cut.. other times it might be a little vague.

Once the trend lines are in place.. I toggle my chart back to bar or candlestick and look at the highs and lows....

I know much of this is discretionary.. and it can never be exactly pre programmed or automated... but after a while I believe one can get the hang of drawing meaningful trendlines..

I honestly believe if one can master drawing trendlines and they dedicate their entire trading career to this... they can trade any market in any time frame. Once this skill is attained they can either trade breaks our bounces. This is an edge that will never go away.


--MIKE
 
Due to time constraints.. I will not be able to show each and every trade at the close of each day. I realized that it will take too much work that I am willing to contribute.

I know its pointless to just post how I did each day.. w/o showing the chart and outlining the logic behind each trade...

If anyone is interested please private message me.. and we can keep in touch. I started this thread to get some feedback and I would appreciate any comments.

Anyways.. I made about 65 cents on the SPY today.


--MIKE
 
Quote from Trend Fader:

I have been getting some emails asking on how exactly to draw a trendline...

From my experience there are many different ways to draw trendlines.. chances are 2 people that see a chart will draw different trendlines in different places...

On of my favorite techniques to make it simple and more consistent.. is simply to use a line chart and first draw trendlines based on that ( basically you would be drawing trendlines on close only). Look for 3 peaks or valleys on the line chart then connect them. Sometimes the peaks/valleys will be clear cut.. other times it might be a little vague.

Once the trend lines are in place.. I toggle my chart back to bar or candlestick and look at the highs and lows....

I know much of this is discretionary.. and it can never be exactly pre programmed or automated... but after a while I believe one can get the hang of drawing meaningful trendlines..

I honestly believe if one can master drawing trendlines and they dedicate their entire trading career to this... they can trade any market in any time frame. Once this skill is attained they can either trade breaks our bounces. This is an edge that will never go away.


--MIKE
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For those learning to trade intraday. It is useless to do trendlines as advised here. By the time you get three of anything in intraday trading, you are looking at hsitory so far back it might be going off your screen.
 
Quote from bubba7:



For those learning to trade intraday. It is useless to do trendlines as advised here. By the time you get three of anything in intraday trading, you are looking at hsitory so far back it might be going off your screen.
More...

Hrmmm...

Maybe because you don't know how to draw a trendline...

Historically backtested... trendlines break entry and tight stop is viable.

The questions is whether risk management or trendline working...

But considering random entry with the same entry/exit money management... it is viable... statistically...
 
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