Trading NQ via Price Action

O - So right at the open we break that DL from overnight.

A - Above here we have a lower high we can use for a SL and also the RET for a short which I took. It works really well right away and I draw in a stepper SL.

B - Below here, my steeper SL breaks and I see the higher lows forming so I get out. I was up 5 points near the bottom, but I'm out for just over 2 points.

C - So here, I see as we are coming down again, and if we do this means my first SL is still intact, and this bar to the right of "C" would in fact be another lower high, so I'm thinking of re-entry. I put my stop in one point below this bar above, indicated by the purple down arrow, and I get filled on the next bar.

This trade only works for seconds, and I'm starting to see this trade in a different way. If I consider the first break of the SL, the steeper one, this green arrow below D is in fact the RET for a long. This is encouraged by the higher lows on these bars for the past 5 minutes. Since I'm currently in a short right now, this is a huge problem.

D - To the right on "D" you can see my exit, which is in fact a little too late. I was waiting to see what happened at the previous swing highs, and when the less steep SL broke as well, it really was time to get out. I did a bit of hoping for a few seconds and that might have cost me a point.

So at it stands, I'm actually now at -$(38) instead of the +$41 I was at on the first trade.

E - Here would be the first RET to go long, but its well above from where the move up first started. It is also 2 ticks above the overnight and ultimate high, so at least that, because going long below this level would be more problematic. It doesn't trigger anyway.

F - There are now two breaks of a DL, so a stop to go short here is justified, but it too doesn't trigger and the SL breaks.

G - We have this lovely hinge forming, and given how the tops are tested a few times as well as the bottoms, its a fine looking hinge.

H - We break out the bottom and I decided to wait for a clear RET which happens here. It doesn't trigger and the SL that we can draw in breaks.

I remember a few days back I took a $100 loss on playing this exact same type of trade. I had a hinge and a SL drawn in. The problem was that I took the trade as an SLA trade, waiting for that RET, but then the exit for a loss was based on price going above the apex. That cost me far too much. If I was playing the hinge, I should have taken the exit when it broke out the bottom, just taken it with a market order, then the exit for a loss would have been a couple of points if that. But since I took the SLA entry, the SL got broken much further down, so the exit should have been just after the break of the line, which also would have been for maybe 2 points. But because I treated the entry as an SLA entry, and treated the exit by using the breach above the apex as my line in the sand, I played it poorly and wasted money on it. I used an entry and an exit from two different strategies which I think should not be done.

Here I was aware that if I got filled on the short via SLA, I would be out much sooner. The hinge entry is easily 2 points higher, so if I took that, I think I could have gotten out BE when price came back up. It did stay below the apex, but its all chop anyway so the significance of the hinge is now lost.

I - So we are finally getting away from all this chop and I can draw in a SL, and we do have a RET here for a short. It would fill 2 minutes later, but I didn't take it, which is a good thing as it would fill just before going back up and breaking the SL.

After this, we have a trading range really. I do fan the SL, but this breaks as well, although it looks like a down slopping channel. I could perhaps trade it like a range, but I hardly have a system worked out and I should just focus on the more basic trades.

SUMMARY

Looking back at my chart where I have my two shorts, its funny how the DLs and SLs I have drawn in almost look like a hinge themselves, and when price breaks the SL, which we can think of as the upper line of the hinge, it really takes off higher. Bad place to have been in a short! But I have no regrets because price could have just as easily turned back down, which it did to trigger my entry anyway.

So just as I was wrapping up, I saw price finally moving.

J - Here is a clear RET for a short. What's nice also is that its below the previous low that was hit a few minutes after the open. I take the trade and am keeping tight stops. So tight that the profit is hit within seconds. Turns out to be quite a good exit as price went back up again breaking the SL. This might just be an area of congestion before it drops some more, but I'm getting worn down here, and the previous hour has been not so great so I will stop here.

So now I sit at only a -$(7) loss.

I will say this. As horrible as yesterday was, and as unfortunate as my second short was today (I still maintain it wasn't the worst trade, but an earlier exit should have been made once I saw things from the opposite side), I am actually making serious progress. I am putting on more trades and taking legitimate entries. I shouldn't have so many $200 losing days mind you when my up days are less then $100, but to be hovering around BE from the beginning and learning so much is still a half decent result. If 3 months later I'm still no further along then this will be a problem, but for now I think I'm still on the right side of the tracks.

K - Marked in this long to just watch, although there is a better RET lower down. As it turns out, DL breaks and it comes down quite strongly.. good thing I was already done! :)

Edit: Oppps.. forgot to mark in the K on the chart, but its that last up green arrow for a possible long.
 
Got up early today to see if any of the news releases were going to provide a solid trade opportunity but it seems like not much happened when the clock hit 0830. Oh well....

So I missed that little plunge at the end of the day yesterday. On the hourly chart, the DL was broken and there was a solid RET in there which would put you into a short in the area of the high 1920s. The drop continued overnight, reaching a low of 3894, and just like that, we turned around and are in a solid rally now, already going above the mean of this overnight action (3921 to 3894 with a mean of 3907)

Looking at the chart of yesterday, what is also painfully clear now is not being able to break the previous highs. We had a couple of pokes above 3940, and each poke was a little lower forming the hinge. The big picture lesson here is that this was obviously a good place to short. Yesterday wasn't the easiest of days, but taking a step back and looking at the big picture like this I find often creates an opportunity, even though I guess the trade is gone by the time its clear. But just taking a chance at such an extreme level is no worse than taking a chance anywhere else on the chart, and of course trading at an extreme means that it either works right away or it doesn't. Shorting anywhere below 3940 in many cases didn't trigger or caused a scratch, but the overall trend was still not up.

In a way I can understand why I've seen it written that trading using a higher bar interval is easier, but for me the stops are much too wide at the moment, and I sort of want the immediate confirmation as opposed to having to wait around.

Anyway, the attached chart is what I'm looking at right now. Will of course re-evaluate in 30 mins just before the open.
 
O - So we open at pretty much yesterday's high, but this value isn't all that significant anymore since we went through it no problem overnight.

A - I could have fanned the DL that you see to the left, but it would have been too flat, so I started a new one here, the first steeper one.

B - Here is the first official RET for a long but price drops down going all the way to C.

C - I can use this swing low for my DL. I had a trade set at B, but with price coming down to C, we really are moving quite far away from where the entry would be and hence this doesn't give the long position as much strength.

D - So now this is where the entry should be, one point lower than the initial entry. I hesitated moving it down because we had a bit of trouble moving past 18.50 with those three bar tops, so I didn't want to be buying into what could be a top. So my initial entry got filled at 19.50.

E - As you can see though, I'm out here. The reason for this is that now I felt bad about not getting in a point lower down like I should have. Since we are now at the overnight high, if we do turn around back down, I have a point less of breathing room. So I figured I should just exit the trade since my setup wasn't solid.

F - Of course the trade continues to work, so here is a valid RET again for another long which I take.

G - But once again, I'm out. The reason this time being that I have now missed out on over 5 points from my initial entry and we are over 10 points now above the open. Without being in this trade from the first solid entry, any RETs could be a major problem, so once again, I exit for a tiny profit just because I wasn't happy with it.

So I'm sitting at +$37.

Turns out the exit was a lucky one, and sure enough, we did turn down.

H - We break that first DL, and here is the trigger for a short. Price rallied up quite high, and although it comes down again to where my entry would be, the fact that it went so high and formed a lower high to use to draw the SL means that my entry is so far away from the SL, and I'm not too happy with this either so I don't take it. Turns out to be a good thing, although an exit at BE could have been made or at least less than a point loss.

I - Eventually I use this area to fan my DL once price goes higher, but for now, I draw in my little wedge. I favor a break up given the higher lows on each of these bars, and sure enough, it breaks up.

J - That fanned DL holds up well here.

K - After a break of the DL I start with the first SL, but the SL is just ever so slightly broken just above where the entry for a short would be. Once we drop below the entry point we could fan the SL and this trade turns out to work quite well, but its not taken.

L - Here would be the next entry, but a whole 4 points lower. This one eventually fails, but once again, the exit could be made at BE.

M - Here would be a trigger for a long after the SL break, and my gosh, instant 5 points! I don't even draw in a new DL because the rise is so steep and the DL is bound to get broken.

After this, or more like even more like right at the open, I am losing interest. I've got too much on my mind today in my personal life which is a shame because the moves today were quite nice. If each entry was taken there are a few 5 point moves, and the trades that don't work have very low cost scratches. SLA works very well today.

SUMMARY

So I guess I'm done at +$37. Just too much on my mind even though I look forward to the trading session every morning.

I'm getting quite good about not caring to be honest. I'm not taking all the entries as I should, but of the ones I take, I don't have that anxiety like I did before. What's the worst that can happen... I lose $100? I think staying at BE over the course of a few days is not that difficult if you don't do stupid things. Making consistent money is of course the goal, but I think its quite attainable now that I am losing fear of even entering a trade.
 
What a day we had yesterday. When I walked away, I had just finished drawing in this large hinge as pictured. It appears to break out the top, only to come back down again. Now I could have fanned the lines a little bit, but that wouldn't be accurate for what I saw in real time and how I might have played it. This happens at "N" (please refer to chart in the next post that has the proper annotations). Had I taken a long just on a whim, hopefully I would be as nimble to get out quickly when price comes back down.

If I then saw price leaving the bottom here at P, look at how there is a RET to almost the apex before coming back down again. This would of course also be a great SLA setup.

And lastly, look at the lines I have drawn in around Q. For 4 minutes price can't seem to go lower than the blue line, but each time it bounces off, nobody is willing to buy higher. So its just a matter of time until it breaks through, which it does, and once this happens, its one hell of a move! Now of course there was no way to know that it would go all the way down to 3860, and there were some serious climbs back up, especially the move from 3883 to 3896 which looks very much like its testing the 50% level of the drop, but shorting at Q looks obvious to me now and hopefully something I will be spotting in the future and acting on.

PREP FOR JULY 18

So for today, its been a nice steady climb from 3855 to 3890 thus far. If we consider the down move to be from 3927 to 3855 (this low was hit after the regular hours), then this is a 72 point move, and the 50% level would be at , 3891! We have just bounced off below there, so if we can't make it past 3891, then it certainly looks like its more down hill.

So next to this, lets just try and follow SLA today. It worked well yesterday, which shouldn't be a surprise given how its back tested. Its only on very choppy days where you run into a bit of trouble.
 
A definite case of stupidity today.

O - We open up here, try down, but it doesn't stick. Price came back up from just above the DL I had drawn in that captured the overnight rise up from the past couple of hours.

A - So this made me wonder if a long here is appropriate since it technically is a RET above the trough. Didn't take it as I really want to wait at least a few minutes to see how this shapes up.

B - Tiny break here of the DL, but price quickly turns back up. I've got that level at 89 outlined, but I don't think too much of it now since we have crossed it a few times already.

C - So I'm missing this whole move up, and looking at the 15 sec, I finally see a RET so I take it. Works for a few points, and then my DL is broken. I think "no problem", we need a swing low anyway to connect for a better DL since the one I've got is just straight up.

D - My exit unfortunately isn't till here. Hung in there way too long, wishing and hoping. Furthermore, if I took a trade off a 15 sec chart, this is what I should be using as an exit. So in the attached inset, you can see the DL on the 15 sec chart with a DL based on this price action gets broken way higher and even an SLA short would trigger.

Oh well... I"m down -$99.

E - So here is now an SLA short. Once price comes back down to trigger the entry, I can draw in my SL with that lower high on the entry bar. This all happened really quick so my actually entry is a point lower than it should be, but oh well.

F - I've got an exit here for no good reason other than a bit of fear where I perhaps saw some hesitation so I got out. Actually, I think I saw price drop down, but quickly come back up so I got out to keep some profits.

I think I was now at about -$50.

G - So now I'm thinking of re-entry. This bar above G does break the SL, but if price comes down to trigger the entry, I could fan it. Sure enough price does come down and I'm in, but price also quickly takes off back up. In fact, the bar after G, the entry bar is a higher low. I of course start seeing this only a minute into my trade, but want to give it a bit of room.

H - So here we have what would be a long trigger. The SL break is now holding, price isn't dropping so it really can't be fanned, and if price comes up to trigger the entry for a long then we will for sure have a DL. As you can see by my exit, this is exactly what happened, so I'm out for almost a 5 point loss.

So now I sit at -$152.

I - Ok... so lets see if we can stick to the rules and rescue this day. Price keeps going up and here is the first RET for a long that doesn't trigger. With price coming down, the DL from down below breaks, an so would the SL that I drew in.

J - With price bouncing off here, we really are settling into a trading range as drawn in by the upper and lower lines.

K - Here is an exit from the range, but the long wouldn't trigger on the RET above the exit. Good reason I guess to wait for that RET.

L - Here is now an SLA short, but we are in the lower half of this range, so maybe not the smartest idea. Price does go lower, below the range, but no way to know that at the time.

M - Following the SL down, here is the first RET for a short below the range. It also doesn't trigger and then the SL breaks.

N - Here is the first RET for a long, but as always, I hesitated. The DL breaks a few mins later.

P - Here would be another RET for a long, but our DL would have to be fanned, but at least this entry puts us above the choppy area.

Q - So yet another RET for a long. Sure we are at the top of the range, but still a couple of points below the ultimate top at C or lower high at K, so I take this one. Sigh.. it fails fairly quickly and I'm out. My exit could have been better as price comes back up again for a few mins, but it never does come back to my entry or give the initial trade any strength. Once again, I take the third entry perhaps, and each extra chance is also that much more likely to finally stop the trend I think.

Now I sit at -$211.

R - So now the internet cuts out right about here.

S - This is where I get it back using the cellphone connection, missing this whole move up which I might have taken given that lovely wedge I drew in below. I would have been seeing this form in real time, so its legit, but of course if I waited for a RET after the break above, it didn't come.

T - There is this lovely RET here, but man, I'm worn down I think. Better just quit here.

SUMMARY

Well... lets see. If I followed the rules, I guess I wouldn't have gotten in that first long that caused me to lose $100. My first trade then should have been the short at E. I might therefore not have taken the second short at G because I wouldn't be desperate to make up the money. Then I might have been able to take the long at H. It might have added up to about 5 or 6 solid points. This is of course plenty if I'm trading 5 contracts, which I could be doing if I have been consistent up till now by following rules.

Oh man, even that long at T is now worth a good 3 points.

So here is the plan. This weekend I will go over the week, maybe even the last 2 with just SLA... solid SLA, hardly any thinking involved, just following the rules. The charts unfortunately do change when you reload the data, so this might change the results slightly, but I'm fairly certain that 10 solid trading days of data using SLA should be enough to convince me to stick to the rules. (at the very least, if I'm gonna take trades off a 15 sec chart, I gotta use this same chart for an exit after a break of the SL or DL, but for this backtesting, I will just use the one minute chart)

When I look at my other monitor that also has a one minute chart up but more compressed, this whole day looks like a hinge now. The apex is roughly at 3896, which is the mean of all of this action today, and the break out the top of the hinge is at least a solid 10 point move. Sigh, quite a few good opportunities to take, all in hindsight of course.

I read NoDoji make a post in another thread where she read that its important to focus on what you did right every day. So for today at least, I had one solid SLA trade, and my charts showing where the other SLA trades should have been is pretty much text book as well. In fact, with many of the SLA trades also not triggering, that should be a clue to look in the opposite direction.

I also read BonScott's journal, and he is fairly good about following the rules and just plotting the solid SLA trades and I'm sure if I counted up his point total at the end of the week, its a positive result.

Anyway, I will report back over the weekend with my results and charts for my backtesting. I don't think I could do any worse than losing $200 today even if I took each and every trade in a choppy environment.
 
Here is that lovely hinge today. If drawn in with just the first swing points (not the very first ones mind you that set up what could be an even tighter hinge 30 mins into the open), it looks like it breaks out the top initially at about 09:35 (my chart time), but comes back into the hinge to test the apex which is actually at roughly 3914. But then it breaks up again, and there is a solid RET at 3898 just above the upper line of the hinge. This would set up a perfect long.
 
TEST OF USING SLA FOR WEEK OF JULY 14-18

Ok... so the results are in. Doing this was a bit frustrating.

First, I wasn't really using any analysis info from before the open, just drawing in my lines, following the trend, and taking trades after line breaks and of course 1 point above or below the RET. So as I was doing this, I was fighting myself with taking certain trades because some other piece of information would tell me not to, but since that info wasn't exactly in the rules of SLA, I couldn't use it. (truth be told, what I think is good info is not exactly producing better results for me!)

The second thing is that although I tried to do it justice, I'm still not exactly sure if I would do this exactly as this in real time. Of course in real time the charts might also look different and I haven't compared these charts which have better data than the charts as they formed in real time which are what is posted in my journal.

Now of course the reason for not following rules isn't a good reason, but as you're doing this, you realize that you actually need a set of rules to make SLA your own. I had forgotten this a bit since I moved past trying to just stick to the lines. What constitutes a line break is a huge rule that needs to be defined as well as how you draw your lines (ie. how tight you make them). Then there is the issue of whether to fan a line once it breaks and yet price still continues in the same direction, or do you start a new line with the most recent swing points.

So this is why I say that I'm not sure what I would do in real time. I tried to move from left to right as I did this, but I for sure still had a general idea of where price was going. If a trade set up that I knew would fail since I knew where price for going though, for this test, I still took it and took the 2 or 3 point loss. So I still tried to be as faithful as I could be to how this would unfold in real time. I never did let myself get to a 4 point loss like I have in my trading mind you, and I never did exit a trade just because I was protecting profits. (The 4 point losses only happened twice I think though, but the act of losing almost $100 probably set up the day not too well)

You will see on these charts some trades were counted as being worth 0 points because price would come all the way back to entry and it hung around the entry level for a while so an exit at BE would have been very possible, so I tried to hold on as well, not just taking a few points profit in order to make the tally of points for this test sound better.

Anyway, so the rough total is +16.5 point. If I take away 1 tick for the cost of each trade, and I have 27 trades, that is just under 7 points. So lets say that I would be roughly up 10 points for the week or $200. As it is, I am down exactly -$349, so the results of my testing are obviously much better.

CONCLUSION

This is a bit tough. Blindly following the rules is a bit difficult when there could be other things that help you make a more informed decision, so I can't go back to doing just this. At the same time, my excuses keep me out of too many good trades, so I really need to figure out what I need to be looking at and what not to put too much weight on. On top of this, the big picture is really important. Just because a trend looks like its going up for a moment and a short should be exited, where price is in relation to the opening level or where price keeps trying to cross but can't are very important to trying to figure out what traders want. Furthermore, lines break because of sideways action, but this doesn't exactly mean that the trend is changing, and a pause before a big drop or rally happens very often. Rarely does price instantly go up or down, so some hesitation or pause has to be expected.

For this test I did stop once I was clearly in a range, and as outlined on my charts, I waited till I went either above or below this area indicated by the thicker horizontal lines. I then waited for a RET after this to get into the move. In my real trading I was always scared to get back in for fear that price was faking a break out of the range. But as I see here, as well as each time I do my daily wrap-up, once a range is left, this is exactly where to get in so that you can make the most points before you hit the next range.

I of course also want to really test using 15 sec charts as possible entries to get in sooner. It sucks to see price take off 10 points at the open and I just sit there because I need to see an entry on the 1 minute, although I see little RETs all the way up by watching the right tick. By the time the one minute RET is there, the move could be running out of steam. Mind you, the last thing I want to be doing is trading like a machine gun, and practicing the art or restraint and patience won't exactly be a had trait to nurture.

Perhaps the biggest lesson is to not give up. This test produced an average of 4 or 5 trades a day, and my actual trading usually stops at about 2 or perhaps 3. So if I see a valid setup, it has to be taken. I think that given the fact that my account is just slightly below BE after a couple of months now isn't exactly a terrible result, and simple tweaks are needed to get it to slowly grow. Of course the ultimate goal is being to extract enough money to produce a daily income, but adding on the contracts will easily take care of this once I'm consistent with extracting at least 5 points every day.

Most of all... I need to do more testing!
 
So here is what I'm looking at this morning. Overnight, we have moved between 3921 and 3932.75, with a mean of 3926.75. I show this 1 minute chart quite compressed to capture the entire overnight action. I have also drawn in a hinge. Although the hinge could be drawn in a bit tighter, with the result of the hinge being that it leads into a trading range, on a higher time frame chart, the hinge would look like a solid hinge that hasn't broken yet. On top of all this, the range of the past hour, or the apex of the hinge, both of these have a value that is pretty much exactly at the mean of 26.75.

I would love a break above 28 or below 24, which would be a solid exit out of the hinge or out of the trading range, complete with a RET to allow for a clean entry into the move and then a continuation! Sometimes it really is this easy!

I am actually quite surprised to see we are up here so high given the events of the past few days. With the fairly huge drop 2 days ago, it seemed as if we were going to visit the bottom of the channel, but we came all the way back up, just short of making new highs. So we are currently between the mean and the upper line of the channel.

On the hourly, as attached, we have just broken the DL, and perhaps you can almost make the case that the RET is right there, combined with the break, but its almost microscopic on the chart! When you compare the highs on the 16th and 17th, you have the lower high there that sets up a good short, and so today, it looks a bit similar where there is that lower high formed overnight, with the first high being from the end of the day yesterday.

Anyway, lets just see what happens at the open!
 
Drats.. off to a bad start! Took a trade even before the open. Couldn't pass up the opportunity that presented itself. We have a break below 24 complete with a RET so I took a short. I have that tight SL drawn in, which broke, and it sure looks like a bounce above the bottom of the overnight range. I didn't not want to take the trade because of the range bottom, but after the bounce, the SL break, and what looked like a higher low, it was time to get out. A higher low did form in the end.

Oh well.. so I'm starting with -$29, but it was a solid trade, and since I'm not trading by looking at my P&L (at least I shouldn't), the fact that I took a good setup should be a positive thing.
 
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