trading bar by bar......an experiment
- Thread starter padutrader
- Start date
.Traders want a system as they think somehow that gives them more certainty about the market but it doesn’t. It just gives the more certainty about what to do without analysis and “deep” thinking and intense “focus”. The brain is a marvelous instrument capable of many more calculations than computers but it is also lazy and looks for shortcuts. Systems give a pseudo certainty to traders. But it isn’t certainty about the markets. The markets remain uncertain. Day in and day out. Systems offer security but not security about the markets. The markets know nothing about your rules..your trades..and frankly the institutions could less about our potatoe chip money so we can dispense with the idea that they are out to “get” us. They are after each other, not our pipsqueak coca cola money.
The best we can do is discern which side of the institutions are winning at the moment; the bulls or the bears, and tag along with the winner of the moment.
Since markets and markets players change all the time and there exist so many variables, and even unknowable variables, no one can ever be certain about the markets, regardless of what any backtesting appears to reveal. When backtesting was done it was done under conditions unique (with all it’s variables) to the period one is backtesting. Those exact conditions will NEVER be repeated again. Hence backtesting is virtually a colossal waste of time...IMO...
AS TRADERS ...the most important skill we can learn is how to determine which side is winning at any precise moment in time and have strategies and tactics that we can employ for the moment. A toolbox of tools for the moment so to speak. Even then we only have a slight edge. If we are good most of the time a 55% to 60% chance of being right on market direction, at the beginning of a trade. But if we can manage trades well, that is all we need. Tommorows market will not have a repeat of todays exact conditions. Hence uncertainty. Take an exact setup. Will work today and fail miserably tommorrow. Same setup. What happened? The environment and conditions under which the setup was subject to were different. Three days ahead they will again be different.
Learning to read which institutions are exerting the most pressures, as price moves and leaves it’s footprints, is what we need to know as traders and then how to execute and manage trades in the daily changing environment.
But that isn’t all. Traders have the emotions and psychological area to deal with also.
The best we can do is discern which side of the institutions are winning at the moment; the bulls or the bears, and tag along with the winner of the moment.
Since markets and markets players change all the time and there exist so many variables, and even unknowable variables, no one can ever be certain about the markets, regardless of what any backtesting appears to reveal. When backtesting was done it was done under conditions unique (with all it’s variables) to the period one is backtesting. Those exact conditions will NEVER be repeated again. Hence backtesting is virtually a colossal waste of time...IMO...
AS TRADERS ...the most important skill we can learn is how to determine which side is winning at any precise moment in time and have strategies and tactics that we can employ for the moment. A toolbox of tools for the moment so to speak. Even then we only have a slight edge. If we are good most of the time a 55% to 60% chance of being right on market direction, at the beginning of a trade. But if we can manage trades well, that is all we need. Tommorows market will not have a repeat of todays exact conditions. Hence uncertainty. Take an exact setup. Will work today and fail miserably tommorrow. Same setup. What happened? The environment and conditions under which the setup was subject to were different. Three days ahead they will again be different.
Learning to read which institutions are exerting the most pressures, as price moves and leaves it’s footprints, is what we need to know as traders and then how to execute and manage trades in the daily changing environment.
But that isn’t all. Traders have the emotions and psychological area to deal with also.
Thank you volpri,
I wish I like this write up you wrote 1000 times sir. WELL written and logical. I will respond more detail after work.
volpri,
I totally agree with everything you said, especially the part regarding "the moment". From my own experience, I find it important to always be thinking what to do during the day if this or that situation arrises. Focus and thinking is defiently the main priority for me. Knowing what to do if this or that happens, and where I want to enter. I basically just read, think, and react. It is a constantly thinking game and something is always in the way to disturb analysis, but it must be consisdered as noise.
Someone said “History never repeats itself but it rhymes” From my relatively limited view, a backtest is simply a way to validate of a hypothesis, but not a way to discover what works.
h2 l2 is brooks terminology.....and that is only his technique to enter on a pull back,something a large no of traders have been doing for a long long time
BUT there can be no doubt that strength leads to strength....either up or down.....that is what i am looking for.....and trading: strength!
of course that is what many traders do and estimating strength is critical....and far from easy.....or simplistic and requires a great deal of skill...
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Not All H1..H2..H3...etc and L1...L2..L3 ..etc are the nor are the probabilities of them working out the same very high. Everything thing depends on the players involved at the time and current market conditions. And the PA senario in which they occurr. For this reason one cannot simply say take every H1...H2 trade out there. That would be embarking upon the road to ruin. EVERY setup MUST be weighed against the current environment in which it is taking place. The brain can be trained to do this and actually will do it to some degree instinctively but again it tends to be abit lazy so it has to be nudged to conciousley observe the larger picture and assimilate the data from it as it draws conclusions about the probability or possibility of a particular setup being successful and to what degree.
While strenght begats strenght ..weakness begats weakness...and while markets tend to do what the have been doing (at least for a while), the degree to which that is true, and the “reach” of what it is presently doing is predicated upon the players involved that are “writing” the PA action as they drive the markets with all their intentions and degrees of their desires. Variables that cannot be known with certainty. Nevertheless, as they “write” the market, it tells abit of a story as to what those variables and intentions are doing to the markets. To interpret that precisely is nigh impossible however as the skill to do so is sharpened with experience one can indeed learn when it is best to employ certain setups and when it is best to refrain from employing the setup.
Most of the time we traders operate in a band of 40% to 60% probability. That is, any particular setup has a 40 to 60 percent chance of working or not working. There are fleeting moments of 70% even 90% but they evaporate swiftly hence concentration and focus coupled with astute observation is paramount. A constant re-evaluation (even of a position already taken) needs to be employed at all times....as market conditions can change swiftly and with a vengeance. For instance, the market appears to offer a two legged or measured move opportunity. A specific tool (setup) is used to take a position. Even a profit target can be set and determined prior to entry. Nevertheless, as the PA unfolds one must evaluate the degree of strenght or weakness, the intensity ..etc in which the first leg is being made and from that mentally extrapolate the degree of probability of two legs happening or not happening. PA may be turning from a trend into a range and it may not be obvious at the moment of entry. This is certainly going to affect ones PT.
Hence I asked Padu why did you not exit at the top of the range in his trade example he posted. It was obvious the market had been trending up. But trending markets (at some point) go into a sideways movement or even an swift reversal. You got a two-legged pb from that tight channel up. This is the first indication that a range was begining to develop. By the time his entry was made the uptrend had evolved into sideways move of “x” number of bars and not just a Pb (in that particular TF). So you have to ask yourself..given the environment what is the probability I will see a two legged move from the bottom of this now evolving range? What is the probability of price reversing back into the range after reaching the top of the range? Wher will the top of the range most likely be? What is the probability of this sideways move in which i find the market evolving into is just a bull flag and the overall trend will soon continue? As the range grows larger the effect of the prior trend becomes less and less on the PA. So, a trader can take an entry, establish a PT but must be flexible to adapt to evolving conditions otherwise, a paper profit can soon turn into a real loss. A one legged profit is better than a two-legged loss. While it is true that a trade should be given some wiggle room and should be allowed to “play out”, so to speak, that concept is subject to the evolving environment and to the present forces as they write the PA knowingly, or unknowingly. I would have grabbed my profits at the top of the range (DT) as the environment was telling me a range was forming and armed with that observation AND knowing that 70 to 80% of BO of ranges fail and price trades back into the range i would have exited my long..then shorted for a subsequent move to the bottom of the range. A range forms when bears and bulls are about even in the pressures the exert upon a market. BUT at some point one side will exert more pressure and win, and the other side will capitulate and we get a BO of the range. That could happen in Padu’s range. But until then it must be traded using PA tools for ranges.
PS there is no noise in the market. What appears to be noise is a trend on another TF. There is only movement. Discerning and gauging the strenght of a movement, it’s direction, and duration in the present environment in which it is found is imperative for a trader’s success.
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in order to have a trading plan, wouldn't he first need to discover a profitable trading system/edge? (which basically nobody has)
I don't have a 'trading plan' yet after 12 years because i'm yet to find something that 'works' lol