Trading Dummies

[Babak]

For todays (see chart for numbers) MOGN:

1/2] Obviously 'unusual' activity in price/volume so it has our attention

It Forms an inside bar

My own tweak of the dummies pattern is to go long above this signal candle and to put a stop a wee bit below it.

Trail stop if/when it goes your way and manage trade.

Why did I go long? Because it gapped down but there were two wide candles showing great price improvement not deterioration. Obviously, I could have been wrong.

The traditional dummies play would be to go short below the inside candle which in this case would have resulted in no trade being taken (since price did not fall).

 

[Babak]

Quote from MackieMesser:

I see all the Q&A, but is there one place where he describes the method completely?
m

Look for unusual price/volume denoting a liquid and volatile stock

Wait for either an inside candle or a counter trend candle to form. This is your 'signal' candle.

Go with the trend and enter above/below the signal candle (as trend would dictate) and place your stop (above/below).

Manage trade (trail stop loss, take stop loss, take overnight, sell at eod, etc.)

If after signal candle price does not move in direction anticipated (and your buy/sell stop isn't triggered) its a scratch and you move on.

CM uses 30 minute candles but you could technically use smaller time frames.

Have I left anything out?

 

[ChaosNSX]

I like the concept, reminds me of a simplifed version of the the calculated rolling pivots used in Fishers ACD Method. Maybe instead of a range of a bar, BBs should be used on the next shorter timeframe, to get a better idea of intrabar volitility. This would allow for a tighter entry.

 

[BloodTrader]

Thank you...that is helpful.

m

Quote from Babak:

Look for unusual price/volume denoting a liquid and volatile stock

Wait for either an inside candle or a counter trend candle to form. This is your 'signal' candle.

Go with the trend and enter above/below the signal candle (as trend would dictate) and place your stop (above/below).

Manage trade (trail stop loss, take stop loss, take overnight, sell at eod, etc.)

If after signal candle price does not move in direction anticipated (and your buy/sell stop isn't triggered) its a scratch and you move on.

CM uses 30 minute candles but you could technically use smaller time frames.

Have I left anything out?

 

[Babak]

Chaos,

That sounds like an interesting idea and I'm glad that you're modifying it to make it your own unique strategy.

I'm not familiar with the ACD method btw, care to explain? Why don't you pick a stock and implement what you're proposing and show us all what you mean.

btw that goes to anyone else too. Feel free to pick a stock and apply 'dummies' to it and then tell us why/how, etc. Just make sure you explain why you picked it, where you entered and why, where your stop loss was placed and why, etc.

Quote from ChaosNSX:

I like the concept, reminds me of a simplifed version of the the calculated rolling pivots used in Fishers ACD Method. Maybe instead of a range of a bar, BBs should be used on the next shorter timeframe, to get a better idea of intrabar volitility. This would allow for a tighter entry.

 

[Babak]

Follow up:

I've attached the complete intraday chart (15min) for MOGN. The entry level is green ($26.35ish) and stop loss is $26.20ish

Which gave us around $0.15 risk

I've drawn a grey rectangle where I approximate most people would have exited, some or all, based on a trailing stop going below the last candle's low. This is just one method, I suggest you think about other methods.

For example, you could have a timed exit, or peel off shares in thirds as it moves in your direction, or set a 'target' at $26.70ish from prev spike low, etc...If you have an interesting way of trailing stops or managing the trade, let us know.

So, lets say that this trade ended up giving us a 2R+ (based on exit at conservative est. of $26.65ish). Hope that's a realistic estimate for everyone. If you don't agree, let me know why and how you would have exited/managed the trade.

 

[BloodTrader]

How are you scanning for the candidates?

m

Quote from Babak:

Look for unusual price/volume denoting a liquid and volatile stock

Wait for either an inside candle or a counter trend candle to form. This is your 'signal' candle.

Go with the trend and enter above/below the signal candle (as trend would dictate) and place your stop (above/below).

Manage trade (trail stop loss, take stop loss, take overnight, sell at eod, etc.)

If after signal candle price does not move in direction anticipated (and your buy/sell stop isn't triggered) its a scratch and you move on.

CM uses 30 minute candles but you could technically use smaller time frames.

Have I left anything out?

 

[Babak]

Quote from Babak:

If you wish to follow along, set up your IB marketscanner to pick up unusual volume/price movements and also look for unusual gaps up/down with volume in premarket. If you don't know what IB is... you need to crawl out from under that rock.

 

[KevinK]

Quote from Babak:

Look for unusual price/volume denoting a liquid and volatile stock

Wait for either an inside candle or a counter trend candle to form. This is your 'signal' candle.

Go with the trend and enter above/below the signal candle (as trend would dictate) and place your stop (above/below).

Manage trade (trail stop loss, take stop loss, take overnight, sell at eod, etc.)

If after signal candle price does not move in direction anticipated (and your buy/sell stop isn't triggered) its a scratch and you move on.

CM uses 30 minute candles but you could technically use smaller time frames.

Have I left anything out?

I think that CM has said he uses 15 mins bars. In the chat he had on this topic on August 2, Tradermike, who has been trading this method recently, stated he watches the 10 and 20 EMA on the 15 minute chart, and has a certain time frame he waits. (the amount i forget, either 10:15 or 10:30).

 

[Babak]

Thanks for pointing that out.

Technically you could trade using a smaller or larger time frame. BTW, I'm pretty sure MaoXian uses 30 min. for dummies since all his lesson charts are in that time increment. But as you've seen so far in the journal, it is possible to take good trades using smaller increments.

The basic idea is the same. A good entry which allows you to set R to a manageably small amount and which provides for a meaningful entry to go with the trend.