Trading NQ via Price Action

[toucan]

KP...

7 years ago, I switched from daytrading stocks to daytrading futures and had to develop a new trading process that was a better fit for the futures shorter term price moves. I started out with a trading plan of about 15-20 pages and sim traded for about 18 months. During this time, i added/subtracted items from my trading plan and ended up with about 10 pages. Over the next couple of years, i weeded out more parts that didn't seem to work (like eliminating trading ranges setup) and eliminated other parts that were only needed during trading plan development... parts like: what timeframe to use for charts, chart type, lagging/non-lagging indicators, symbol liquidity, trade size scalability, and others. My current trading plan is just under 2 pages. I make minor adjustments, but have had the same trading plan for several years now.

I started out looking at charts and my trading plan constantly, but now I look at my trading plan once a day prior to the futures open. This reminds me what to look for during the day and the order that I should be processing the trading plan.

My trading plan consists of 5 steps and the order that I process the trade plan for each trade is:
1) Review price movement fast/slow.
2) Determine near term price direction up/down/sideways.
3) Look for pullback/reversal near some price location like high/low yesterday.
4) Look for entry trigger like pullback setup and 2 or more bars back in the original price direction.
5) Manage the trade using initial stoploss, moving stops incrementally and profit target.

I use these 5 steps looking for trades and managing trades during the day. Above, I gave a couple of examples of what is under each heading and there are no more than 6 bullet points, under each heading, that remind me what to look for in more detail.

I trade much differently than you or DB does so what I have to say may not be what you are looking for. Also, each person has to define a trading plan that best fits their personality. Some examples are: chart time frame, stoploss, profit target, incremental stops, etc. It took me a very long time to become comfortable with how I trade. For example, if I use a stoploss under $500, I am ok trading all day. But if I use a stoploss greater than $500 and I lose 1 trade, I trade differently for the rest of the day.

toucan

 

[k p]

My current trading plan is just under 2 pages. I make minor adjustments, but have had the same trading plan for several years now.

I started out looking at charts and my trading plan constantly, but now I look at my trading plan once a day prior to the futures open. This reminds me what to look for during the day and the order that I should be processing the trading plan.

My trading plan consists of 5 steps and the order that I process the trade plan for each trade is:
1) Review price movement fast/slow.
2) Determine near term price direction up/down/sideways.
3) Look for pullback/reversal near some price location like high/low yesterday.
4) Look for entry trigger like pullback setup and 2 or more bars back in the original price direction.
5) Manage the trade using initial stoploss, moving stops incrementally and profit target.

I use these 5 steps looking for trades and managing trades during the day. Above, I gave a couple of examples of what is under each heading and there are no more than 6 bullet points, under each heading, that remind me what to look for in more detail.

I trade much differently than you or DB does so what I have to say may not be what you are looking for. Also, each person has to define a trading plan that best fits their personality. Some examples are: chart time frame, stoploss, profit target, incremental stops, etc. It took me a very long time to become comfortable with how I trade. For example, if I use a stoploss under $500, I am ok trading all day. But if I use a stoploss greater than $500 and I lose 1 trade, I trade differently for the rest of the day.

toucan

Thanks for your thoughts toucan.

Its interesting how your trading plan shrunk as time went on, and yet others have a plan that is more specific and just keeps growing. This certainly shows that each trader has to be comfortable with how they trade.

The SLA trading rules are so simple that they would take a paragraph, not even a quarter of a page to write out. I do think the system works, its just that I couldn't make it work. There are a few things that have to be defined by the trader, and I kept changing my rules, and also not taking all trades as I should. All over my charts are SLA trades that I didn't take, and trades that I entered that weren't set up properly.

Its interesting that you say you don't trade like myself of Db, and yet you sound like you are still quite profitable. I obviously don't trade like Db either (LOL... I would be profitable if I did), but I was certainly trying to follow the SLA, but I know I do so quite badly.

What I am trying to develop now though is focusing on just trading at the extremes which Db outlines in his pages on AMT. I do think the experts can make decisions on the fly based on what they see, but this only comes after years of experience, so I need something with solid rules for now, something that isn't soo subjective, which I imagine your system is a bit given that you use phrases like fast/slow and sideways. I find even when I tried to define a trading range I would run into trouble because this all depends on which swing points you use. But using previous day highs and lows, which everyone else can see, and overnight highs and lows, which are once again obvious, should hopefully provide something solid to build upon.

 

[k p]

Yikes, I don't like this new look to the journals at all.

At any rate, I spent quite a bit of time over the weekend on the trading plan focusing on only the overnight and previous day highs and lows. Its of course not ready to go, but just looking at one thing while flipping through dozens and dozens of charts really makes certain things stand out.

Today, given the climb, we aren't so far close to any of these levels, so I might not be able to forward test anything just yet at the open. Yesterday's high is 3886.75, so if price comes down it will be interesting to see what happens. I'm not sure if I will take any trades today. I'm for sure not that eager to trade given the acceptance that I'm clearly not doing things right and the account is going down, but perhaps this will allow something obvious to jump out.

The best trade for me is already gone. Yesterday's high at 86.75 was breached, and although a REV trade would have stopped me out (I of course might not take it when looking at a tick chart), going long once a previous day high or low has been breached often works. Here it looks like it was worth 10 points so far.

So trading at the extremes is really where the focus should be. When an extreme is identified, once price finally breaks out above or bounces off and goes back down is usually a very clear move that continues.

 

[BonScott]

Yikes, I don't like this new look to the journals at all.

Just don't go looking for your old charts. It might spoil the day

 

[k p]

Just don't go looking for your old charts. It might spoil the day

Wow.. you're right.. all gone! Well I do have them on my computer which is good, but then it pretty much makes everything I spent so much time writing useless without the chart to go along with it! Perhaps it will be rescued once all the changes to the forum are complete....

 

[toucan]

KP

Its interesting how your trading plan shrunk as time went on, and yet others have a plan that is more specific and just keeps growing. This certainly shows that each trader has to be comfortable with how they trade.

Yep.... all traders are different.... thats what makes a market work.

The SLA trading rules are so simple that they would take a paragraph, not even a quarter of a page to write out. I do think the system works, its just that I couldn't make it work. There are a few things that have to be defined by the trader, and I kept changing my rules, and also not taking all trades as I should. All over my charts are SLA trades that I didn't take, and trades that I entered that weren't set up properly.

Simple is best for me, but remember what works for someone may not work for you. You have to define a set of rules to trade by and then trade in sim to refine them into what works for you. Look at the trades you didn't take and ask yourself why. Look at the trades you took and ask if you followed your rules and what can you change to improve. Over time, this will improve your trading plan or prove that what you want to do doesn't work.

Its interesting that you say you don't trade like myself of Db, and yet you sound like you are still quite profitable. I obviously don't trade like Db either (LOL... I would be profitable if I did), but I was certainly trying to follow the SLA, but I know I do so quite badly.

Profitable doesn't mean we all trade the same. It means we have developed a set of rules to trade by that work for each of us.

What I am trying to develop now though is focusing on just trading at the extremes which Db outlines in his pages on AMT. I do think the experts can make decisions on the fly based on what they see, but this only comes after years of experience, so I need something with solid rules for now, something that isn't soo subjective, which I imagine your system is a bit given that you use phrases like fast/slow and sideways. I find even when I tried to define a trading range I would run into trouble because this all depends on which swing points you use. But using previous day highs and lows, which everyone else can see, and overnight highs and lows, which are once again obvious, should hopefully provide something solid to build upon.

I agree that you need a set of rules to trade by. Those that have a set of rules and use them over some time period can make decisions on the fly based on what they see because they have continually used that set of rules over time. I believe there will always be some subjectiveness in what traders do and my goal is to continue to try to minimize subjective decisions that I make. The person that removes all subjectiveness will be infinitely rich or very poor.

good luck in your plan

toucan

 

[k p]

good luck in your plan

toucan

Thanks for your thoughts toucan.

 

[k p]

A - So this blue line is the overnight high, but its formed after a very nice climb up overnight, so isn't exactly a well established level. Nevertheless, this is where no traders wanted to pay more.

B - I see this hinge starting to form before the open. It appears to drop out the bottom first.

C - I also identify with this thick cyan line a level of possible support. It goes back a few hours and there are little pokes but no penetration. So I'd like to see this level broken first before a short is taken.

D - The open today was almost difficult to see as price barely moved. It seemed to fall right in line with 08:30.00 as I didn't notice the flurry of activity 30 seconds early. Some days it starts early, other days its right on time... I have no idea what's going on! Only refreshing the chart hours later shows me where the actual open really falls.

E - Very closely watching this climb up to the overnight level, and once we go above and then dip down below for this one bar which forms a RET, we have a chance to go long here. Price doesn't come up again for almost 5 minutes, so if I was looking to trade it, I doubt I would take it given the chop.

F - Using that DL I had drawn in, it breaks here, and it looks like we are finally getting somewhere.

G - Given that we also go below the opening level, I decide to enter a short here. Wow, I caught the bottom! You see an exit on the next bar. I thought that dropping below the overnight high was good, as well as below the DL and the opening level. We hadn't yet dropped below the resistance line just below 94, but I just figured I would try. We are over 4 points below the overnight level, so a short here is much more riskier as I have proven to myself.

I took a loss of -$49 on this trade.

H - Here could technically be that SLA short shown by the purple down arrow. We can draw in the SL above, and that bar where I exit my trade forms the lower high. This would fill two bars later, but this area clearly is messy so best to stay clear.

I - I really am quite surprised by this rally. You see these 4 bars here, all with an equal high where no trader wants to pay more, and then you have this little gap, a price jump, and price just takes off. So after a very slow initial 25 minutes, things pick up and this is a 10 point move in no time.

SUMMARY

Well that's it. Shame I didn't gamble on the long instead of that silly short. One of things I see is that when I see a move, I wait too long to get into it, and then of course I'm getting in at a less than ideal time. Had I just reacted faster to so many of these wild trades, I think I would be down far less than I am. Of course the idea isn't to take these wild trades, but I at least see that the inability to act is a problem, because when I do finally put on a trade, it is much too late, and the only way the trade can work is if there is a very strong continuation.

I spent the entire weekend putting together a book of charts with all the levels for each day I would be watching, so now that I have that done for the past 2 months, I will go over my trades and see where I went wrong. I'm fairly certain that most trades that have cost me most of my losses over the past few weeks were these exact trades to jump into a move that hasn't been set up properly, and the entry has been at least 5 if not more points into the move, and hence price either turning around right after my entry or at least retracing before it continues, and hence shaking me out, is almost all but certain.

 

[deaddog]

I wonder if I can ask you to give me an example from your trading plan, not an exact setup of course, but in terms of the language you use. Here is what I am thinking after seeing price react so well to overnight levels and previous day highs and lows.

This is probably also almost too broad, but essentially, what happens most often at these levels is first a rejection, unless the price shoots through in less than a minute. So if this isn't the case, if the climb up is slow, then when price gets close to the previous day high, enter a short 2 ticks below (maybe 3 or 1 will work better, have to figure this out). If price turns around even lower (ie. doesn't even hit my entry), oh well, I don't get in. But if it fills, just wait. If price goes one point above, its still ok (have to define exactly what numbers work best), but if price goes 1.5 points above the PDH, then exit for a loss. So essentially I am risking 2 points (which is less than the loss I have been taking on many trades), but the benefit is that I am already in that short very early on. I don't want to define exits because this move might be good for 5 points or 20 depending on the day, but at least I will have an entry that I know will work X % of the time with a well defined risk.

Now if price then goes lets say more than 3 points above the PDH, now buy it at 3 points above this level. So essentially, most often, price either turns around at this level, or traders take it to new highs. So I first try and short, and if it doesn't work, then changes are good it will continue and hence that long should be taken.

I'm not sure of course how well this will work yet, it almost sounds too easy, but as you say, after 50, or maybe even just 20 or 25 instances of this, I should know if its profitable or not, but do you think this is in line with exactly how it should be laid out in the plan? Is this the proper way to write it? What other factors could I add, other filters to increase the chances of taking a good trade and staying out of the bad ones?

This sounds good. Like you said try it by taking demo trades and see if it works out.

I draw a trend line on a 5 minute chart and take a trade in the direction of the trend when price hits the trend line. I'm wrong more than I'm right but every so often I get a good move in my direction.

 

[k p]

So I had to walk away after I posted my review cause I knew that if I stayed I would just want to keep gambling away, but since I saw the up move, I started to look back in the charts to see where we might possibly go. I didn't mention this after my review, but this red line, drawn at the level of 3915.75 which is a high from Aug 4 seemed like a good enough level. It seems that price did shoot up about 2 points higher, but has turned back down since.

So in hindsight, I would say the trade of the day was waiting to clear the resistance level that formed just above the overnight high of roughly 3901, and then just sitting back and holding the long until we got to 3915.