Trading NQ via Price Action

[k p]

Just before I jump into bed I wanted to share this.

I have been doing some great backtesting tonight with the 5 minute trend lines and how those might provide great opportunities.

At the same time, I have been going through my journal and am astonished. Back in early August, I had traders like toucan and bh_prop point out things to me that went right over my head at the time. I had NoDoji a few weeks later outlining her 5 minute setup for the first time in my journal (perhaps she even said it before, I haven't gone back far enough), but this too went over my head. And would you know, she brings it up again, and possibly a third time, I lost count, and it still didn't sink in.

I am sitting here shaking my head at how much help I was being given that I guess I just wasn't yet ready for.

I feel like a little kid who needs to be told something at least a dozen times until I start to listen. I guess in a way, learning to trade is essentially starting to do something totally new and different, hence I am at the 5 year old level where you just hate to listen because you're determined to fight and do it your own way, unaware of the dangers. If it wasn't for parents that relentlessly keep steering their child in the right direction, no matter how many times they have to say it over and over again, we wouldn't grow up as well as most of us do.

So a big thank-you to everyone who has been following along and helping.

I thought weeks ago that I was seeing things so clearly, and yet I was still on the downward trajectory. I dare not announce now that I have turned things around. But let me tell you, looking at my trades from August and September, all I see now are the dumbest entries, all based on emotions, countless trades and exits for no reason, and the huge missed opportunities because a trade wasn't entered where it should have been.

 

[k p]

A - So lets first start with this DL from the 5 min. It was just a bit steeper earlier, but with price shooting up to the OH, I include this swing point here. It doesn't matter match since it breaks regardless.

Why there was a flurry of activity at this time I don't know. The jobs numbers should have been released 10 mins sooner. Hmmm.. maybe the report was late???

We have a solid break below the DL.

B - Above here is the RET, and I mark in an area to take a short, which as you can see I took.

To address the fact that I'm taking a trade when the plan isn't formalized yet, this is true. But after last night, I learned that had I just kept everything the same as I was doing it, but took my entries based on where the RET is, meaning here, versus below the previous bar, which I was always doing, I would have done exceptionally better.

You see, even though I knew the short should be taken below the RET by trailing the entry up just below the bar lows, I was always scared of a double bottom perhaps. So I wait until the previous low is cleared, and then based on emotion, I got into the move, which by this point is too late. At first I was scared to enter where I should, and then I entered because I was scared to be missing out!

So today, I figure lets just short where I should and get out for just a little bit, but more importantly, lets see what happens to me once I'm in the trade.

My exit here is quick because ultimately, the break of the line is solid, but the entry is so far away. The news makes these bars so much bigger, and a stop loss is just too far away. This is also why I exited quite quickly, happy to just put on a solid trade, and make 2 points. (but trust me, I am in no way going to be trading like this. I see so many entries on my old charts, in and out, going with the trend, but getting mere ticks in a 40 point move down... so this isn't the long term strategy)

C - Price goes back up from here, but lets use this as a place to draw a new 5 min DL.

D - Well look at what we have here. A thrust up to this level, which happens to be exactly where the break of the DL happens.

E - We can therefore try for a short below this bar, and just trail the sell stop up as the lows of the bars get higher, which of course gets us short for a better price if we get a fill.

F - We don't even reached this level again on the next try, and so the short would fill on this bar below.

Of course this is a trade I didn't take... shame. (but no bad feelings, just saying its a solid trade that I can see would work)

G - If we try to short here, a legitimate RET, we have to sit through a 3 point rise up, which would be hard to stomach. But of course since the first and best entry is gone, each RET after has a greater risk I would say, not because its a bad trade, but because its a less than ideal entry, not being the first.

H - So here we are breaking the DL again, and even though we poke below, its 6 minutes of congestion.

I - This bar which is fully below the line is just far too big now, and even below here there isn't a RET.

J - Having hit a low here, let me now use this swing low for my 5 min DL.

K - So even though we get our RET here, and it almost looks good because price stops at the breakout level of that congestion at H, the SL I have drawn above breaks. Best to wait for a clearer trader.

L - Here would be my first RET for a long. It might fill just on the top of this bar and then price drops down. I think I know well enough now though to not take the first RET for a trade in the opposite direction of a strong trend. I would say the down trend is strong, and although I guess this is a legit entry for a long given the line break and RET, skipping it in favor of only the best trades might be good for long term survival!

I am able to draw a little micro DL though on the low.

M - So another change to go long, but being right at the open, I don't want to get caught in a frenzy of stops being run and jazz. Lets wait to see what the trend is.

O - The open was so slow, and hardly any volume in comparison to the past few days. Maybe we need a day of rest.

N - I draw a new DL here since the other one broke, and clone this line to connect at the top. Lets just see what happens, but this is of course all on the 1 minute, so its more than likely the algos just playing with me.

P - Playing off the bottom of the line, trying to go long back up, but out very quickly for a tick profit. (this is bad, I am not sticking to my plan. i'm trading the 1 minute chart which i shouldn't)

Q - We break below an even newer DL I had, and with the channel left far behind, it sure looks like our downtrend is continuing. This entry here is a solid RET, and although price re-enters the DL on this bar above, it still closes below. I take this short, and I'm out for 2 points profit. Once again, the trade is in the proper place, and the exit was accidentally hit, but as it turns out, great place to exit.

My day is now at +$68.

R - Now here is the big thing. That 5 min DL that I had draw in and kept slopping down meets price right here. And you know, right after my exit, price just shoots up.

Sadly I was still thinking about my short, but this 5 min DL bounce is a solid trade. Given how quickly price comes up, this tells me that lots of eyes are on this level and see a reason to buy.

Buying above the high of this bar is risky though since the stop would be huge given that this bar is 5 points in height. The trade does work mind you, and if the entry was made around 78 there are at least 5 or 6 points to be made.

S - We hit this high... a few ticks below that previous high at D, but I'm not about to call tops unless I've got a solid trend lines guiding me. I can now use this top as a place to draw in a SL though (the dashed lines I'm using as my longer term trend lines)

T - We make our way down to here, stopping just above the DL. Same problem here. If I put a buy stop above this bar, its a fairly big bar, so the stop loss has to be big too. The trade does work, but we still form a lower high.

After this, we have quite a bit of congestion at the DL.

U - Moving right along, we come to the overnight low. If I put a buy stop above here, I can be swept into a move in case we have a bounce here. The trend is of course down by this point, so this isn't a trade I am really considering, just pointing it out since overnight lows and highs could be a great place for a reversal.

V - So we drop below the OH, and drop below the PDL. I am itching to go short, but know I need to wait. Sadly, I just had to run to the bathroom, and although I see this RET forming, I left as price was climbing up. Just trailing the sell stop below the lows of these bars could get me in here for solid short that is worth 10 points now.

SUMMARY

Looking at the day now, we actually do have a 40 point move down (not tradeable, just the extreme level), but it just doesn't seem like it because of how price spent so much time being congested.

Its ok, I'm happy to have tried a couple of good entries and finished the day on a positive note.

 

[k p]

Sigh... missed the perfect trade here. Just before W, we break the 5 min SL, and I waited for a RET. An entry 1 point above, at 46.50 was eventually triggered, and its been an easy 5 points up since!

Gotta test more what happens not just at any old retracement, but at a RET where price breaks a major trend line. This is one way to take higher quality trades me thinks!

 

[k p]

And alas, more opportunity. At X we have another break of the less steep SL and the RET to go long. Now if I fanned the line a little higher to account for the slightly penetrated high earlier, I could do this, and there would still be an entry a few points higher at about 55 instead of 51.

I'm not watching diligently anymore, just adding this in to continue to test this new 5/1 approach.

Wow.. who would have thought a 40 point rally after such a big drop!

 

[k p]

Ok... so been thinking about my method and the only thing that bugs me is all the fanning of the trend lines. I guess if I'm making sure to just use swing points that are on the 5 min chart I should be fine, but I'm just trying to figure out how realistic is it to take those longs I marked earlier at W and X where that long term 5 min SL broke because I kept changing the line.

Anyway, so after going over it some more, and seeing what ND showed in that great thread that Db started about Potential NQ Targets, I couldn't help but see the similarity. So I've reproduced here chart here, along with my own. I too have the initial FBO, but waiting for the bar that closes above the line, and then going long above this is just pure gold.

In terms of the profit target, what I'm thinking she is doing seems to come up a bit short in terms of the points when I clone the lines and carry it up to the next swing low... but at least the entry is just pure gold!

 

[k p]

Oh.. and I should point out that at the entry by W, the little green up arrow is now in the middle of the line. This is what happens when my data gets reloaded. The bars shift a little given the more accurate data that is downloaded from the server after several hours. This is my only explanation. I should maybe look into getting a better data provider because I'm just using the free data from IB right now, but I'm sure this is good enough and hardly the reason for my losses!

 

[NoDoji]

I think maybe I did an "eyeball" measured move calculation when I posted that

It really is a golden setup, not because it never fails, but because when it works the favorable move is very frequently multiple times the stop loss.

 

[k p]

I do quite like it. Its seems to me that all of these are just taking retracements on the way up. But when that retracement is above the break of a major down slopping trend line, you have way more eye balls on this level and hence more people looking to buy, so the chances of this one particular retracement working better than other is higher.

Good that I understood where you were getting your measured move from.

One final question if I may. Based on this chart that shows my trendlines, how legitimate are all of these supply lines that I have? I'm not sure what the rules are for slopping them down once price makes a much lower high, and then which one to "trust" more on the way back up.

1. I don't consider this one all that important since it hugs price too tight and is somewhat lost on a 5 minute chart.

3. This one connects swing points that are quite far up so its takes a long time to catch up.

4. This one start from even pre-market, and of course by the time its breached, the move up is already so extended. (but of course there was still over 20 points to go, so perhaps there is my answer)

I also notice that now price actually is 3 ticks higher for this overnight high, having reached 3995 and not 3994.25 like what I had from the live data. This would change my lines somewhat I guess, but I can only work with the data I have on my screen!

 

[k p]

One more question for you ND if I may which is a bit of a tangent.

KDASFTG has been instrumental as well in helping me along, I just didn't mention him earlier since he keeps a low profile on these boards (I called him my silent business partner!!!). He has been PMing me mostly about the psychology aspect, essentially taking what I say and throwing it back at me. LOL.... He too is a firm follower of Mark Douglas actually. Its just amazing to have a group of traders who are all in agreement with the fundamentals of successful trading.

Anyway, moving along, he was quite curious about my mentioning of the data feed issues. He sees that you also trade with IB, and he was curious if you use the IB data feed for all your trading. He trades CL like you, and I guess he is curious if you see any inconsistencies with your data like I see with mine for NQ. So if you wouldn't mind sharing, I would appreciate it very much. Thanks!

 

[NoDoji]

One final question if I may. Based on this chart that shows my trendlines, how legitimate are all of these supply lines that I have? I'm not sure what the rules are for slopping them down once price makes a much lower high, and then which one to "trust" more on the way back up.

1. I don't consider this one all that important since it hugs price too tight and is somewhat lost on a 5 minute chart.

3. This one connects swing points that are quite far up so its takes a long time to catch up.

4. This one start from even pre-market, and of course by the time its breached, the move up is already so extended. (but of course there was still over 20 points to go, so perhaps there is my answer)

I also notice that now price actually is 3 ticks higher for this overnight high, having reached 3995 and not 3994.25 like what I had from the live data. This would change my lines somewhat I guess, but I can only work with the data I have on my screen!

I like to connect well-defined swing highs and lows on the 5-min chart. Sometimes "well-defined" just isn't there, which indicates chop/range to me anyhow. Around the open I'd connect the spike high just past A connected to the high at J and the line across J and R was drawn from pre-market.

A well-defined swing to me is more than just a couple directional 5-min bars. The chop around the open isn't really well-defined, but lines can be drawn nonetheless. If a line is really steep on 5-min, I'm generally trading directly off the 1-min chart, taking continuation hooks in the direction of the move. I will then connect the swings on the 1-min for clarity.

What's most important is that YOU test various methods of doing it and choose one that works best for you. Whatever framework you build upon will work. DB's framework is a bit different from mine, but any time I see him noting trade entries on charts, they're very similar to mine because the conceptual foundation upon which our frameworks are built are the same.