Trading NQ via Price Action

[toucan]

KP....

ahhhh.... tick charts... some people think of tick charts as 1 tick charts... I use tick charts because I can automatically calculate things that I can't with time based charts. My tick charts run from 100 ticks per bar to 3000 ticks per bar, depending on what symbol I am trading. I use a 600 tick chart for NQ and given my trades can run as much as 25 points, I am not a scalper.


My actual trading plan is like nodoji's and has much more in it... I think you asked for an outline/example of a trading plan and I thought I was giving you a simple one that you could think about before you started developing your own. What I put in mine is for meant for me and I use my own terminology. You have to decide what goes in yours and use your own words. I continually change/update it as the market changes... I have been updating it for 7+ years now... I started out by defining 6-8 overall general categories that I wanted to have in my plan. Then I started clarifying what I wanted by adding/changing/deleting information under each category. As you build your own plan, over time you will tend to remember what you put in it and what worked and what didn't. You are right about the complexity.... there is a lot to think about when trading.

You said: "This is what I think I need to come up with, something solid and easy with firm rules that say get in here, watch, and get out here. Rinse and repeat!"

you are correct in that it has to be solid, easy to use, and with firm rules. That includes: which direction to trade, what is the current price action, how/when should I take a trade entry and all the firm rules about how you want to manage a trade.

cheers
toucan


Hi Toucan... thanks for pointing these things out. I gotta ask you though... tick charts for futures?? LOL... Are you just scalping perhaps?

Its great that you picked up on my need for a trading plan... I feel it to my core, and of course you have said this to me in the past and yet I didn't do anything at the time.

The next post about what's in yours though is so detailed actually. How do you actually define all of these things? I mean its one thing to say look at pace, but its difficult to put it into a rule that you can check off one by one if the trade meets certain criteria. Perhaps I see this as being automatic once you have been doing this for years, but its seems far too complex for me. I think the less decisions I have to make the better. Kind of like when I saw looking at my reversal trades off overnight levels. Basically I thought to just enter an automatic trade when price is withing 2 ticks of a point, exit is at 1 or 1.5 points beyond the level. So the trade is entered and if it triggers its just a matter of waiting to see if it takes off or gets stopped out.

Of course I saw that when this works it works really well, but not always. So then I thought I can just use the tick chart to guide me a bit so that the order isn't automatic, but place after seeing at least a tiny rejection and retracement in the tick chart. I didn't finish with it as I found it often didn't work enough, but the rules would have been simple and if I saw that it worked well over 25 instances as an example, I could start trading it.

This is what I think I need to come up with, something solid and easy with firm rules that say get in here, watch, and get out here. Rinse and repeat![/quote]

 

[k p]

These are my thoughts for a long:

• Previous demonstration of (some) strength (swing high is longer and quicker than the previous swing low)
• Test of the previous break
• Trapped short traders how have shorted into resistance after a HH (i.e. this is a rubbish place to go short)
• PDH and HOD providing a magnet (and target)

Thanks for this chart FeetFirst... it certainly makes sense and I like the logic used.

 

[k p]

KP....

ahhhh.... tick charts... some people think of tick charts as 1 tick charts... I use tick charts because I can automatically calculate things that I can't with time based charts. My tick charts run from 100 ticks per bar to 3000 ticks per bar, depending on what symbol I am trading. I use a 600 tick chart for NQ and given my trades can run as much as 25 points, I am not a scalper.

Ah, yes, of course this was my silly mistake that I assumed you meant a 1 tick chart! ops:

After reading that ND has 60 pages in her trading plan, I can see that your intro isn't off the mark at all. It just at first hit me like there were going to be 20 variables, each with a few outcomes, so then this meant thousands of different combinations to have to sift through. Its a bit confusing to on the one hand understand that when trading, there is no thinking because all the work is done, yet have all these variables that have to be assessed and acted upon. Its like firing a nuclear warhead... you need multiple keys and so many launching codes before you can hit the fire button! (at least this is how its done in the movies) The CPU in my head isn't state of the art you know! hahaha

Given the amount of work needed, I think I should just pick one... one one setup that I look for. I like hinges, I like trading ranges, and then of course reversals... but this would be too much. Hmmm...

Ok.. let me ask you this. Suppose I wanted to trade a break from a trading range. Can it be as simple as once the upper and lower bounds are identified, wait for a break. For a long, if a one minute bar is completely above this range, wait for the retracement, and if a bar does closes below that bar, I can put a stop to go long a few ticks above that retracement. Its essentially a breakout from a trading range i guess. So I just look in my charts to see how often this will lead to a move that takes off before a loss of 2 points lets say would be hit. Is this too simple?

 

[k p]

Take a look at your early short entry, break of the minor trend line, and compare it to the step-by-step illustration I posted last spring for the breakout pullback entry (BOPB). So the minor trend line (the thicker blue line on your chart) breaks and you wait for price to pull back to it and as long as price doesn't close back inside it, place a sell stop 1 tick below the qualifying pullback bar. Using this simple "confirmation entry" method, your short trade is never triggered, allowing you to evaluate a possible reversal when price breaks the previous high just before bar A. So now there's a higher high, meaning you can get long if price finds support at a higher low. Where is a likely price for higher support to be established? Take a look at the high of the last down bar leading into the low (one bar before D). When that high broke upside, it attracted scalpers to the long side and price is very likely to retrace back to that level. Why? Because a thousand hours of research showed me that's a very common price action pattern. Sure enough price finds support there and you can place a buy stop 1 tick above that bar's high for a long trade, stop loss just below that bar and a measured move target zone around 86.

I illustrated this type of trading tactic here several times last spring. It work more often than not, but you need to study the price action environments where it works best.

Thanks for this analysis. My brain is too fried right now to give it the proper attention that it needs, but I will absolutely study this when I clear my head.

I can see that I will first need to make a decision as to how I will go forward trading as I'm still stuck between the 5 minute chart or higher time frame, and digging deep into these one minute bars. I will do some testing over the next couple of days and see what I can see clealer.

Thanks once again for that book... I'm almost half way and I gotta say, I never realized how just the idea of having an open mind can mean so much. I love the examples and especially the common thread that hard work can make. Of course everyone knows that working hard is essential, but somehow it seems different the way its presented here.

 

[NoDoji]

Thanks for this analysis. My brain is too fried right now to give it the proper attention that it needs, but I will absolutely study this when I clear my head.

I didn't realize it when I posted, but FeetFirst had already posted an exact illustration of where I'd go long.

 

[toucan]

KP... Your trading plan can be as simple or as complex as you want it. It's up to you, what you are comfortable with and can use in real time trading. There are not thousands of different combinations... for example: price direction is either up/down/sideways... you just have to use whatever method you feel comfortable with... like SLA or moving average or higher highs/higher lows. Many of the things you will add into your trading plan, you are (should be) already looking at... its that you haven't yet put them to paper in a format that you can easily use. The same thing with other categories... Most of this is more linear than combinations of all of the items in your trading plan. If you are a programmer, its like this for a long entry pullback trade:

1. if price direction is up then do next step
2. if price location is near a support/resistance level then do next step
3. if price movement pulls back from a support/resistance level then do next step
4. if price movement turns back to the prior price direction then place long entry order
5. if entry is made, then place stoploss and target orders
6. each time price moves up $x profit then move stoploss up by y points

just change #1 above to "if price direction is down then do next step" for a short trade:
and change #1 above to "if price direction is sideways then wait" if price is too choppy to trade

the above is just an example of a linear trading process....

You are right about picking one setup... I started with a half dozen setups and kept track of the money made/lost on each over time.... I am now down to one, but that is my preference... others trade multiple setups.... choosing 1 to start with is a good idea for developing your first trading plan. If one works, then you can add others later.

You asked the question: "can it be as simple as this".... sorry, I can't answer that for you... each trader has to determine what they need to decide to take a trade or not. What ever plan you come up with, I know you have to spend hours and hours reviewing old charts. You need to look at every setup that meets your trading plan criteria.... for profitable trades as well as losing trades. That information will tell you: does your plan work and what should i change to make it better. Some plans just don't work.... others need tweeked to make them work. Once your trading plan works by looking at old charts, then you have to try it in real time to be sure and may need to make changes to reflect real time trading. For example, I figured out how to quickly move orders by looking at old charts. In real time, price moved too fast and my order moving got all screwed up.

cheers
toucan

Ah, yes, of course this was my silly mistake that I assumed you meant a 1 tick chart! ops:

After reading that ND has 60 pages in her trading plan, I can see that your intro isn't off the mark at all. It just at first hit me like there were going to be 20 variables, each with a few outcomes, so then this meant thousands of different combinations to have to sift through. Its a bit confusing to on the one hand understand that when trading, there is no thinking because all the work is done, yet have all these variables that have to be assessed and acted upon. Its like firing a nuclear warhead... you need multiple keys and so many launching codes before you can hit the fire button! (at least this is how its done in the movies) The CPU in my head isn't state of the art you know! hahaha

Given the amount of work needed, I think I should just pick one... one one setup that I look for. I like hinges, I like trading ranges, and then of course reversals... but this would be too much. Hmmm...

Ok.. let me ask you this. Suppose I wanted to trade a break from a trading range. Can it be as simple as once the upper and lower bounds are identified, wait for a break. For a long, if a one minute bar is completely above this range, wait for the retracement, and if a bar does closes below that bar, I can put a stop to go long a few ticks above that retracement. Its essentially a breakout from a trading range i guess. So I just look in my charts to see how often this will lead to a move that takes off before a loss of 2 points lets say would be hit. Is this too simple?

 

[k p]

I didn't realize it when I posted, but FeetFirst had already posted an exact illustration of where I'd go long.

Oh yes, that certainly is such a good place. Looking at it now, I find it interesting how he marks the test of the previous break.. this is something I would never know to look for. FeetFirst.. if you are reading.. do you mean just a break of the bull bar meaning that a higher high was made as price went above the previous high?

If I hadn't just had 2 failed trades, this is what I could see on the chart. I put my hinge in yellow lines now to differentiate the trend lines that are pink and cyan. Jesus... you know, just now, it just hit me... sadly about 8 hours too late.

A - I see the exit from the hinge where I tried to go short. When price re-entered the hinge I should have exited quickly. Then price tries out the top of the hinge (as Db would say since he said hinges often leave the opposite of where they first try). And that up move was strong... but I was too stuck in wishing and hoping to see what was going on.

B - This is where I have my failed long, but if I never took it, looking at this, its a trading range.

C - We try to go up, but can't just yet.

D - Here we break out the bottom, and this is rejected as well. This is what hit me.. it tests the apex of the hinge and found no more sellers. At this point, I was just too scared really to put on any more trades. But seeing the test of the hinge should be a perfect reason to go long above it, which would put me into a long exactly where you guys suggest as well, but for different reasons it seems.

E - The other thing is that I see this down trend given that I can draw this SL (pink trend line), but it obviously breaks, and just above it could be the entry. I find it difficult to think that price can change so quickly, I tend to want to believe the down move first and fear that by going long I'm just getting sucked in.

F - This last trade, the short, I think is a solid to be honest. Going up was rejected, and then it went sideways. Yes I went short far too soon perhaps, but I felt good about a REV given both of these levels and wanted to get in early. It clearly took traders a while to figure things out as well but ultimately it broke up.

So here is where I'm at now. You guys are doing such good analysis, and I feel I am as well. It just doesn't come as quick to me, and worse, I feel as if I had it so well outlined what I would do, then it would be easy.

So that hinge exit, the first one, if it failed, which it did, all I have to do is be prepared for it. And when it fails, bam, just take the opposite trade. The move up was so strong, so obvious, that hitting "reverse" is all that was necessary. This could put me into a long right above the apex, much lower than where my exit was, and then I don't have to do anything any more. I'm not saying I could hold for the rest of the day to get the 20 point move up, but I think that once I'm a few points ahead, I can be in a different frame of mind.

So shit.. what do I do? I love these one minute charts.. I spent so long studying them, and perhaps the only problem for me is that I don't have solid rules so that I can just click without thinking because I know what to do, because its been already worked out. And if I know what to, when I see the failed hinge exit, I will also know what to do as a result of that failure. (ie. I take the hinge exit because this looks solid, but when price comes back, I don't care one bit, I just take the long on the failure of the hinge exit out the bottom)

Dammit.. this really pisses me off, but in a good way. That hinge exit was solid.. but I waited too long to exit. This made me wait too long to go long now... which was 8 points already above the low that we hit on that hinge exit... so no wonder price would go sideways now for a bit. And even if I got shaken out of a long, if it was was taken sooner, where I saw the apex was first rejected on the short, meaning we went through the apex after the rejection of dropping out of the hinge, then I could have gotten out BE on the long essentially. And then when price came down to test the apex from above at "D", I could have gone long above there again, or just held the long as a successful test and rejection of the apex from the top now if I didn't exit. Does this make any sense?

 

[NoDoji]

So here is where I'm at now. You guys are doing such good analysis, and I feel I am as well. It just doesn't come as quick to me, and worse, I feel as if I had it so well outlined what I would do, then it would be easy.

You need everything well outlined and then capture as many charts at the hard right edge of the setup as you can, clean ones and sloppy ones, long and short. Study those right edge illustrations until you can feel what happens next more often than not (there will always be failures). Eventually you'll get to where your mind's eye fills in the successful excursion as soon as you see the setup that before seemed confusing or uncertain, making it easier to put on the trade without hesitation.

 

[k p]

You need everything well outlined and then capture as many charts at the hard right edge of the setup as you can, clean ones and sloppy ones, long and short. Study those right edge illustrations until you can feel what happens next more often than not (there will always be failures). Eventually you'll get to where your mind's eye fills in the successful excursion as soon as you see the setup that before seemed confusing or uncertain, making it easier to put on the trade without hesitation.

And then I can make the cash register ring like you!

This is certainly how I always knew it should work as well. But let me tell you ND, I didn't realize at all how completely horrible I would be at this in real time. Being down in my account has actually been an excellent lesson.

As a quick little example, I dug out this chart back from July. Look at L, where I sold, much too late after price dropped out of the hinge. And sure enough, I held as price went up through the apex and finally got out at N for a loss of about 7 points. This is exactly what happened to me today. We don't have a test of the apex like we did today, but the take home lesson is that when price fails to go down after dropping out of the hinge, going up is now that much more likely and a long should be hunted for right away.

I think that when it comes to hinges, this is what I will be best prepared for to start with!

 

[NoDoji]

As a quick little example, I dug out this chart back from July. Look at L, where I sold, much too late after price dropped out of the hinge. And sure enough, I held as price went up through the apex and finally got out at N for a loss of about 7 points. This is exactly what happened to me today. We don't have a test of the apex like we did today, but the take home lesson is that when price fails to go down after dropping out of the hinge, going up is now that much more likely and a long should be hunted for right away.

I think that when it comes to hinges, this is what I will be best prepared for to start with!

Looking at that trade, I see an entry where you pretty much chased price. There are two common ways to play breakouts that minimize risk and improve reward: Enter on the break of the level (on your chart that would be the break of the low 2 bars back, which takes price through the micro LTL), or wait for the breakout and the pullback and if price sets up a lower high hook around the breakout zone, short the break of the qualifying bar (BOPB tactic).

Had you taken the straight breakout, you'd get a 5 pt target at the parallel channel line. Had you waited for a qualifying pullback entry, it never triggered.

Chasing price skews your R:R badly as you experienced from the posted example. It's tempting to chase price because it feels like you're going to miss a big move (Fear Of Missing Out - FOMO), but the professionals are waiting patiently to buy and sell at trend lines, measured move channel lines, range extremes, and so on, and chasing usually results in entries right at the worst places.