Trading NQ via Price Action

[k p]

Just a quick chart review for today. The 5 min trendlines are drawn in. They are quite shallow, hence we have more of a range from the ON going into the open. The blue lines are the overnight lows and highs.

The frustrating thing about today was that watching in real time, watching the 15 sec chart, there are RETs all over the place, but none that appear on the 1 minute chart for a while. I was watching these carefully in terms of using the same strategy of entry and stop and these all held up pretty well today. Heck, anything on a big trending day holds up well as long as you are trading with the trend I guess. Its too easy to be sucked into a lower time frame though.. so I know to be careful here.

A - So here, even before a trendline is broken, you see a quick drop, followed by a RET up. (see 15 sec insert... this one looks different because it comes from IB charts... I no longer have access to 15 sec charts in MC since I have to use the TWS free version)

B - When we do finally drop below the DL, you see a few mins of hesitation here. Each one of these bars is essentially a RET, but none has the low of the bar that is higher than the low of a previous bar (hence none of these bars qualify as a RET bar). So for my testing purposes, a trade just isn't setting up yet.

C - Lost on this chart is how quick this drop was, so no wonder it retraces back up.

D - Here is the first official RET. Lets try for a short at 1 tick below the low of this bar.

E - Now I know its hard to see, but the height of this bar is one tick above the height of the previous bar. If I was backtesting, I might, in fact, I always did, conclude that this trade failed because I would say it hit the stop which would have been 1 tick above the height of the RET bar (what I call bar D).

The question of course is what came first? We can see price exit on bar D, open at the high of bar E, and perhaps go one tick higher there before coming down. But there is simply no way to know for sure unless we look into a lower time frame chart. For backtesting purposes, this isn't possible as only 1 minute data is available for me. So you know, for my backtesting, as much as i didn't want to, I'd have to call this a stopped out trade. This is in fact what makes me say a 2 tick stop is better because these one tick pokes happen. For the cost of that extra tick when the trade doesn't work and I'm taking a loss of one tick more, I think I'm saving some losses from taking place, letting the trade hit the profit target before it hits the loss target. (ie. I'm paying an extra tick for each loss, but I'm making less trades losing trades and letting more hit 1:1 profit)

So you know, perhaps the stats are even a bit better than what I presented because there could be times where the target, especially the 1:1 profit target, might have hit before the loss target, or rather, the poke higher happens before the trade is filled and after entry, the trade continues down rather than back up.

Anyway, on a day like today, each RET entry works (as marked by the red arrows) if we consider the stop as being the top of the RET just before the entry. So you could either take lots of 1:1 trades, or even better, scale into your contracts one by one.

F - This last one just makes it for a 1:1 profit, and then of course price comes up.

Wow... imagine adding contracts on the way down on a day like today. My $4000 loss would have "retraced" back up nicely today... hahaha.

Not many days happen like today, but if you have a hunch, like maybe the fact that yesterday was just a good rise up and so it makes sense that price might retrace down today, and hence know what you're looking for, and when you see it you know what to do, then making a living from this is very possible. Also, it seems like just watching those first few seconds, perhaps, the first couple of minutes, you can often see how desperate each side is. I have no stats on what happens if the initial start is a quick drop. Here the first bar is just slightly more than a 4 point drop, so it doesn't stand out on an EOD chart today, but something about watching it in real time said nobody was looking to buy right at the open and look how it turned out!

 

[k p]

So the morning started out crappy because there was a problem with the IB TWS API... so my MultiCharts wasn't getting any data. So this chart for today will be from IB TWS. I wish I could stretch it out a bit more...but I have no idea how! There are several different ways to select 1 minute bars, and one way lets you expand and compress the chart, the other way doesn't, but for some reason, I can't swtich between the two. (I'm actually not that dumb with computers, but I find manipulating charts in IB very frustrating)

I spent quite a bit of last night really going over what it is I'm doing. This is actually getting more simple to be honest, at least from a technique perspective. Not that I can make use of it just yet, but its brewing in the back of my head. SLA is all about the RET and just following trend. What I've been doing with my backtesting is essentially the same thing. Sure I'm waiting for a 5 min trendline to be broken, which is a good filter, but waiting for that RET is just the same. By doing this backtesting, it has really made me focus on where to get out. Exits caused me quite a bit of trouble with SLA because a break of a line seemed too soon and its not a firm rule anyway, and not having a firm rule made me exit for emotional reasons. Having a very defined exit in terms of the low of the previous RET has been instrumental. This way I'm able to get some firms stats as well, and this helps the overall confidence.

Anyway, lets get into today.

So we had a big move down overnight, but for the past few hours, its just a range. To be honest, I had it in my head that this range was ugly, and it was before price shot up which compressed all of these bars. But when I looked at the chart pre open, because the range was only 10 points wide, it took up my whole screen so it looked messy. But now, I see nothing wrong it. Once again, because I was stuck with IB charts, I didn't know how to compress it down. Usually I like to at least be able to see a range of 20 points so that visually I'm seeing the same thing every day going into the open.

O - So we open here (sorry, the text in IB doesn't allow for transperancy and hence my "O" covers the bars, but this is where this bar opens). We try up, slight poke of the SL, and come down, but we reject that too. Up again, and down again, although we do form a higher low.

Seeing it now, I can see a nice trade setting up above that higher low. I have literally seen this exact same thing dozens of times in my charts. Most prominent is that about a month ago where we bounced off 3793 I think it was, an important hourly level, and we had this same slightly higher low just a few minutes after the open.

Anyway, so we go up and break the SL again.

A - So here is the first RET. All along I'm telling myself that we are stuck in this ugly range, although we have now made an effort to go above it. I mark this in here because it is officially the first RET.

B - The low of this bar at B does ever so slightly penetrate the SL. You could almost call this a test of the breakout level, but no matter, here is the swing low of this RET.

So an entry one tick above A is naturally called for. Because I'm itching to trade, I do put on a trade, but I use 1 point as my entry, not the 1 tick I've been testing. The bars have already changed on this chart, no idea why, IB must automatically update data, but the next several minutes all have the same high and my entry isn't triggered. So I breathe a sigh of relief because its just sideways chop and I didn't get caught up in it.

C - Price does shoot up to here and I'm in. (This bar at C should have the high about 3 ticks higher than the previous bars... oh well) Of course price drops right away.

Now here is the thing. I know what to do.... but I didn't do it properly. In the moment, I will admit to being lost. The chart is still stretched out, so that RET from A to B just looked so big. My initial OCO order is set to a loss of 3 points, so I have to slide it into position. As price is coming down, I do slide it away to give it a bit of room, but honestly, I just didn't look properly where it should have been. I think at the time, seeing as this was a 6 point RET from the entry, I didn't accept the loss, and when I'm in the moment, because I didn't prepare for it properly, I wasn't able to be on auto pilot. I just slid the stop loss lower, but not where it should be. Where it should be is far away, so perhaps I was also scared to put it there.

D - Price comes down to here, and to the tick, this is where I slid it down to even before it hit. So I'm out, for exactly a 5 point loss. And would you know it, price shoots right back up. (Its also interesting to note that my 1 point entry, although I thought it saved me from getting in where it was choppy, the only thing it did was cause me to lose an extra 3 ticks. My entry was triggered anyway at 1 point, albeit a couple of minutes later, but the better price would have given me a smaller loss or bigger profit. Had I gotten in sooner, who knows of course what I would have done in terms of where that stop should be, but just pointing out the significance of that 1 tick vs. 1 point entry)

Looking at this chart, its clear that this forms yet another RET, so a re-entry is called for above this bar. So not only did I mess up on setting this trade up properly with the appropriate stop loss, but I also messed up because I wasn't ready to take the next trade. If my gut told me I was uncomfortable with the big initial stop loss, I could have skipped it, and here could have there been my first entry, on this better RET, with a smaller stop for this trade, and the entry would have been above even yet another higher low.

E - So right about here is where I decide to just get in, seeing that this move is now solid. (Mind you, I should have seen this once price shot straight up after I was stopped out) The entry was at 4219, just a market order, and as you can see, I'm caught in this tiny RET. I know you can't see the entry because I forget how to mark in the trades already taken, but it happens at the top of this little RET. Because I know the entry was not set up, I exit for quick loss of under 2 points, once again, just before price turns back up.

F - Here was another nice RET, but the bars now have the same height so this is more of what I call a double top, DT, entry, as opposed to the RET entry where the bar top dips at least one tick lower.

G - This swing low would have been the stop, and although price does dip below the entry in the next few bars, it never comes close to the stop. So there are essentially 4 RETs on the way up that all work here.

I just had it in my head today that after two good trending days, today will be choppy. As Mark Douglas would say, I just wasn't in the now moment flow to accept any new information that might be presented.

H - I mark this here because after I saw this lower high below this bar, I started looking for a reason. If I connect a SL from the hourly chart from our high at 48 two days ago, this is where my SL comes down to. As I type my entry, I can see that we have broken this line. I'm not saying I would have taken the short just based on this lower high, but its interesting to note it.

CONTINUED IN NEXT POST

 

[k p]

SUMMARY

So today was unfortunate. After so much of my careful backtesting a nice set of rules, I just didn't follow them today. Since that first trade was a 6 point stop, a 1:1 profit would have been 6 points, and obtained eventually. I could have even added another contract on the next RET.

At any rate, I'm down -$143 for the day.

Its just incredible that following the rules will absolutely make me money, and would have every day this week. I also know that even if I have a losing day, it doesn't matter because a trading method is based on a series of trades.

Once again, having Lescor's journal fresh on my mind, and also being very familiar with geez, they all have losing days. I kept getting discouraged on the days where the price action was just choppy and thinking that on this day I would lose money and that its back to the drawing board because what I had as a plan wasn't good enough. But this really isn't the case. Just following price, waiting for a breakout from something, either a range, or a hinge, or a breakout from the 5 minute trendlines that often forms a wedge before the open, and then taking the first RET with a clear idea of where the stop would be is really all that is needed. Being psychologically available for a re-entry is crucial, and knowing that you will have losing days is also important to accept. But I guess I do see that this isn't really all that complicated if I can just get past the problems I'm introducing.

I'll let myself off the hook today though. My platform issues put me in the wrong frame of mind at the open, and the first mistake of not setting the stop loss properly is what caused the rest of it to go wrong. If I was uncomfortable with the stop, I could have skipped the trade and been available for the next one that setup after that spike down that stopped me out. The important thing is that I see the rules would have produced a good day today. I also see that I could have easily attained a 3:1 profit today as well, even with such a big stop. Trading SLA would have me out out around 4225, but as I've been saying in the past few days, holding at least one contract to the end of the day, or at least just getting out BE can often have big rewards. We hit a high of 4243 just as I'm about to post this. So if I had a bunch of contract from the first entry at 4212, this one by itself is worth 30 points just on its own not even 2 hours after the open. Yikes, and I'm down the equivalent of 7 points... what a shame!

PS. I'm attaching a second chart to show how ugly this range looked to me going into the open. If I slide it to the left to get rid of the nice rise up, this is what I'm seeing before the open and I'm looking at a messy 10 point range that I guess really isn't all that messy)

 

[k p]

Aye... I'm so frustrated. MC is back up. Its just so clear today.. so easy.

Marked on this chart are the first 3 opportunities complete with where the entry should be and where the stop should be. I just literally had to wait, place my order, place my stop, and just wait. Yes the first one has a huge stop, but the second one is easier to swallow. The third has a tiny stop and they are all good. This third one is where I took my market order instead of waiting for the proper setup. Jesus... I really did mess up an easy day.

The only saving grace is... the only silver lining is that this chart can now go into my folder as yet another example of how the rules I have in place will make money. Honestly, I am scared because days like Monday, which I see now wasn't easy might chop me up. But I think when I add the week up, any week if I just follow the rules, winning days will out number losing days. Jesus... even Lescor had losing weeks never mind just losing days!!

I do still need to figure out exactly how close my entry should be, and where my stop should be. A 1 tick stop seems like it will break too often below that RET low. The 1 tick entry is perhaps better. But on the back of my mind is still the fact that SLA uses 1 point... so I need to solve this.

I tried to do this last night and once again, got discouraged because sometimes a point worked better, sometimes it just caused more losses. But there I go again, trying to make every trade a winning trade if I just change one thing. It might work better for one trade, but worse for another. I have to accept that there will be losses, many losses, hopefully just small losses if I'm doing it right, and when I got a winner, when I have a trend, add to it appropriately and realize that most of these moves take hours to fully develop.

God I make myself sick sometimes.... I could teach this to a chimp and he'd make more money than me!

 

[k p]

PS.... Just want to make sure that nobody thinks I'm idolizing Lescor. All I'm pointing out is that Lescor had losing days and losing weeks. Geez had 5 straight losses in a row. ND had mentioned before that she actually has lots of losing trades. Db talks about how a loss is just a scratch... it probably doesn't even phase him enough to call it a loss. The important thing is to be ready for the next opportunity.

Just wanting to point out that I'm copying anyone, or idolizing anyone, just pointing out that a successful trader has losses, so if I'm going to be a successful trader, I too will have losses and have to accept this and not let it get in the way of making proper entries.

Ok... done.

 

[Ghost_of_Blotto]

Otherwise, best get on with going live with your new statistics! Be sure to report back when you lose again.

At any rate, I'm down -$143 for the day.

Since your progress is speeding up, I'd like to make you an offer.

An independent trader who has been in the business since the 80s once told me that one of his most reliable ways to make money on the floor was to fade a loser. And to an extent this approach can still work on the screens - ET being a good place to look for losers to fade (and his main purpose for visiting).

Your trading is a bit too reactive at the moment, being afraid of small amounts of adverse movement. You will be told or tell yourself "You are missing out on the trends because you cannot hold through a RET". Next step is expand your stops to compensate for this lack of accuracy, which will expose you to larger losses, longer periods waiting for a trade to go back in the money, and therefore more intense emotional swings. You will also catch occasional bigger wins. With some luck you'll "get away with it" long enough to up your contract size. When things then go wrong, you'll become a very good fade as you blow out your account.

When this is due....if you set up a confidential real time source for posting your trades immediately at the time of entry and exit (perhaps twitter?) - then I would be prepared to pay for this information in the form of cash back against a portion of your realised losses on those trades. I know at least one trader who would appreciate receiving such information.

Interested?

 

[Ghost_of_Blotto]

Hope you're not too proud...reminds me of this scene in Pulp Fiction:
http://www.youtube.com/watch?v=DicYF4RQBnU#t=36

 

[bh_prop]

The only saving grace is... the only silver lining is that this chart can now go into my folder as yet another example of how the rules I have in place will make money. . . . But I think when I add the week up, any week if I just follow the rules, winning days will out number losing days.

I can almost understand why you attempted a live trade today: you had done a fair amount of backtesting using consistency in drawing your pre-open trendlines off 5 min swing h/l and every r/r metric from 1:1 to 3:1 had positive expectancy using your sample size.

That said, what good does all the backtesting do if you can't even implement your tested rules in the 1st 2 live trades you attempt?

 

[KDASFTG]

Greetings,

I believe Kp is going through a transitional phase of self discovery, learning, and change. The process takes a goodly amount of time to change beliefs and our psyche. Especially long held deeply ingrained beliefs which are successfully used in our everyday lives. This is especially true in trading wherein some beneficial beliefs held as sacred in life, are inappropriate for trading and can have dire consequences to ones trading. For example, beliefs such as; "what is right, and what is wrong" need to be deeply and conscientiously reexamined, when operating in a probabilistic environment such as trading. Further, as Douglas says:

"You can't assume that learning about something new, and even agreeing with it, is the same thing as believing it at a level where you can consistently act on it."

Professional trading is one of the toughest skills to master on earth. I very much admire his persistence, his tenacity, and his courage in this all too very public forum.

All these things take time...their own sweet time,.....and each in his/her own time.

KDASFTG

 

[k p]

That said, what good does all the backtesting do if you can't even implement your tested rules in the 1st 2 live trades you attempt?

Can't argue with this. It's a shame that today I had my platform issue. I'm not using this as an excuse, but its just another variable that unfortunately makes it difficult to analyze my result. Had I been able to start with my chart set up better (ie. more squeezed to show 20 points on height not just 10), this RET would have been more clear to me, and this range wouldn't look as messy I don't think. Its difficult for me to say now if I had a clear idea of where my stop was when I entered the trade. I saw the entry just fine, but I don't recall if I calculated that my stop was 6 points away. In my testing, this is hardly the case... its usually only about 2 or 3 points.

Anyway, so I'm not exactly sure how the trading plan failed today. I could say it happened all so quick, but I see one bar just before that quick drop which took me out, so this was a whole minute of price just sitting there. Yes I was in the red at this point, but I had probably 2 whole minutes to adjust my stop properly and never did before the trade was stopped out.

Oh well.. it just just one trade after all.