Trading NQ via Price Action

[k p]

What a wonderful perspective... I'm truly appreciative! This is of course the macro view that Db stresses so much and the all important context. I see how much of the overnight action you incorporate into this chart and how well it fits with the big picture.

The high probability trades really are around E. The upper channel line is well formed by now, and its the swing low at D that allows you to connect that lower line, so that you have a proper channel forming. Of course price looked like it was breaking up, but this didn't last, and hence a trip back down to at least the bottom was high probability. When it broke through the lower trend line, I see an obvious retrace back up to test this level, and a short below those bars that come up would have also been an excellent trade.

I absolutely agree that 2-4 trades a day is plenty. My hesitation is that just as soon as I spot a channel, as an example, it seems to stop working. I get sucked into the micro managing of a trade, trying to look for the precise and safest entry that I am absolutely missing the forest for the trees as Db would say.

Thanks for this chart... I think its just awesome that you're speaking the same language to me. I especially love how you say to let them do what they want to do until one side prevails and then hop on. Its just that when I get to thinking about entries, I'm a bit tongue tied, and its difficult to know how to take advantage in the safest way possible when whatever happens going forward is unknown, even though I have a pretty good grasp of what just happened.

Gosh... when I compress my chart enough to see what you're seeing, it really does stand out!

 

[k p]

Most people that make it in this business actually tend to have, more determination than brains. I guess you're on the right boat then
:eek:

I too have come across similar articles so I know I'm smart enough, but luckily not too smart!

But what I am lacking is the trader's mindset of thinking in probabilities, being comfortable with risk and accepting it, and taking myself out of the equation as KDASFTG is working so hard to rid me of!

 

[k p]

Oh.. and one quick point as I'm reading over your answer again Alpha Trader. You mentioned that I entered into some possible trades in that red area, which is true, but that upper channel line could not be drawn until that swing high at G. If I used the swing high at C going into the open, then it sure appeared that we were breaking out of the downtrend at that point. So it really isn't until the high at G, and the low below D where we come back up, that we can make use of this channel.... correct? Going into the open things looked different, did they not? I of course agree though that there is no need to jump into a trade until we have enough to go on.

 

[k p]

Two Charting Issues - Trendlines and Data Feed

In light of the excellent post up above by Alpha Trader, I'm splitting hairs here with this next post about minuscule issues, but I was working on this post earlier so I'd like to share.

So the first issue is with trendlines. When I draw my 5 min trendline and then switch to the 1 minute, things don't always line up as well. The lines seem to move, and now the swing points on the 1 minute are either not even touching the trendline, or they penetrate. Please refer to the attached file.

On the 5 minute, the trendline looks perfect, but switching to the 1 minute, L seems to penetrate. Its not as bad here, but in other cases it looks much worse. So if I'm inclined to move this line so that it looks better on the 1 minute chart, look at what happens later down the road in that consolidation area. (and when I swing back to the 5 minute after this adjustment, now the 5 minute doesn't look right)

I don't understand how a swing point that is on a 5 minute chart, and has a value that is an absolute value, can now somehow be penetrated or not even touched on a lower time frame chart.

ND... do you see this happening? Is the proper thing to do to not touch the line after its drawn on the 5 minute and just live with how the trendline doesn't match up as well when I switch to the 1 minute?

Second issue is those damn bars again. Its working pretty good now for the most part though. I keep my IB chart on the screen along with my Multicharts, and what inconsistencies there are, are usually just the close or open of a bar is off by a tick. It amazing how given that the data just comes from IB, and its the same data!!!!.... that Multicharts can't draw it properly.

Anyway, the strange thing is now, since I told Multicharts to get the time from the server, when I see the countdown timer by my right tick, it sometimes gets to 4 seconds, and then starts at 1:04 again (my computer time is within a second of the internet time places). Its counting down the 1 minute bar with more than one minute! No wonder I had such problems with the way my bars were forming before.

In the posted example I do see this one high out of place, but this seems to happen only when price moves quick. Luckily I can just reload, and since I told Multicharts to use the data on the server, to download it again and not use the cached data on my hard drive, I get a perfect update in only seconds.

My god.. as if I don't have enough to worry about!

 

[Alpha Trader]

The high probability trades really are around E. Of course price looked like it was breaking up, but this didn't last, and hence a trip back down to at least the bottom was high probability. When it broke through the lower trend line, I see an obvious retrace back up to test this level, and a short below those bars that come up would have also been an excellent trade.

We could go into way more details here (I'm done for today though), but you've got the idea.

A - was also a decent trade. It wasn't as clear cut, but you could have taken this with small size as it showed some persistence on a lower time frame to breakout of that overnight range.

B - gave you a tight risk trade, esp with such good sized bars down from A, which have very small wicks. Your cover would be the inverse hammer. This was followed by a double fail and could have made a decent trade up.

C- is a "semi" ii setup (beware of these, as most times they will fail if it is followed by a doji and if both bars are not breached). The retrace from here is shallow and a LH. Too congested, no confirmation yet and the tops of B and C showing good double top resistance (which follows onto G and the high between D and E. B, C and G make a iii on a higher time frame) in an overall down channel. Time to get in a set of crunches here

My hesitation is that just as soon as I spot a channel, as an example, it seems to stop working.

This will get better with time.

Gosh... when I compress my chart enough to see what you're seeing, it really does stand out!

Try playing around with different time frames and put yourself in the shoes of those who are about to trade them. It'll help with looking at things a little better.

 

[Alpha Trader]

Oh.. and one quick point as I'm reading over your answer again Alpha Trader. You mentioned that I entered into some possible trades in that red area, which is true, but that upper channel line could not be drawn until that swing high at G. If I used the swing high at C going into the open, then it sure appeared that we were breaking out of the downtrend at that point. So it really isn't until the high at G, and the low below D where we come back up, that we can make use of this channel.... correct? Going into the open things looked different, did they not? I of course agree though that there is no need to jump into a trade until we have enough to go on.

That is very true. You were trading a triangle or a slightly ascending wedge at that point. However, context is very important and that is when your price action skills will help keep you out of bad trades and keep you longer in good trades.

Also, note that this is a descending channel (not the strongest one, but strong enough) and it is better to get a conformation of the change in trend before getting in that direction, unless there is something compelling enough to make you do so.

 

[k p]

Thanks for the further analysis.... many things went over my head, and its ok because its not stuff I'm even aware of (inverse hammer.... semi ii setup). I do like what you said about "A", the breakout from the overnight range, but alas, I was in bed. Best thing to do would have been to wake up for a drink, go short, and go back to bed, sleeping in for entire morning session and waking up to close the trade in the afternoon!

Thanks again for all the info... its great to keep getting a push to look at the big picture. Combining the big picture with precise entries and ability to hold is the end goal!

 

[k p]

So today was a bit different. The girlfriend spent the night because she was off work today and had always wanted to "play" a little since trading is all I talk about lately. So being the good guy that I am, I was going to let her while I just did the order entry. Its funny because her mindset is totally different, and although she said she would cover the losses today (so it was in fact her money on the line, just not her account), she was mostly motivated by profit, not by fear like me. She isn't the type to take the tiny 1 point profits that I've been taking.

A - This first trade is mine... teee hee. Its a short on a simple RET after the break of the 5 min DL. The close isn't below the line, so it breaks the BOPB rule, but I'm just using it for illustrating purposes for her. When the trade went against me, I was explaining how quickly things can get out of hand, and the 5 point loss happened right away! LOL (in hindsight, the exit should have been much sooner, and of course seeing such strong buying power could have signaled a long. I know this because so many of my losses in the past happened exactly like this... and when I'm taken out so quick before I know what even happened and held on too long, the opposite trade is usually a killer move!)

B - She tried for a long here, but we had a bit of miscommunication about where her exits would be, so we got out for a loss of 3 points. We started down -$160.

C - Got into a long (by this point she just wanted to use market orders and call out the trades just based on watching the right tick go up and down).

D - Out for a profit, but back in again for another long.

E - She called a short here (wow... at the top.. LOL). And we took another profit down below. (shame we didn't hold this one of course)

F - Another short here that lead to a profit. After this a few trades I don't remember.

G & H - She tried for two longs here. By this point she had a firm $40 stop loss in mind, so 2 points. I told her its risky to be going long in a very strong downtrend, but oh well. So two back to back loses of roughly $40 each, but a little more since the fill was probably lower.

Anyway, we end the day up +$264. We were over +$350 before those last two longs that were a loss, and of course we started the day at -$160 so we had easily $600 in profits.

Now before anyone starts sending the mental health truck to pick me up and take me away since this is pure gambling, this isn't me gambling, she wanted to just "play". In a way, its a better form of gambling than a casino because we are in charge, and trying to trade in at least the direction of the trend (except those last two trades), actually gives us an edge of some sort, at least way more than whatever edge a gambler thinks he has in a casino. We were exceptionally lucky that today was a day when it trended so well and it was an instant 30 points up and 70 points down.

I of course read Db's post this morning, so I had a heads up. The rise up to E was quite a surprise, but lets note that we couldn't make it to the overnight high before we turned.

Since I wasn't trading, looking at price objectively was much much easier today. Gosh, I bet that if I just didn't watch my P&L, I could already do so much better. I really should get my sim account working and just place trades with all the knowledge and experience I have, yet without the fear, and I could more than likely do much better than I have been doing. Even though I don't have a firm plan, I know what to do, I just don't do it when I should, and when I enter trades, its never at the best first entry.

But given the developments of the last few weeks, the great discussion in my thread, and also Db's excellent advise yesterday, I know that the only way forward is to really develop that plan.

I'm torn right now between taking a longer time frame approach as this works oh so well, and my emotions are too much of a factor trading these 1 minute bars, hence the longer time frame approach, but at the same time, I know that unless my entry is stellar and it moves into profit right away for me, I will have difficulty with larger stops. The macro view, the context, is just so so important though, so although I could develop a plan to trade 5 points somewhat consistently, I am amazed to look at a chart at the end of the day and see the huge moves that were possible to capture if I just didn't mess around in areas where traders are too busy going back and forth. Part of the reason why I haven't developed that plan yet is because I don't know what I want to do. I want to capture the macro trend, but then I end up messing around with a point here and there, so its a case of "jack of all trades, master of none".

Anyway, I'm happy its a long weekend, I really do need some rest. These past few days have offered incredible opportunity, such huge trending days, so it sucks to not have been able to take advantage of this, but the only way forward is to really develop that plan to reduce the fears.

 

[k p]

Well not much to report today. I did get up 30 mins before the open, but I was convinced the markets were closed as per this link I use... it clearly says futures markets closed! (and I ended off Friday happy for the long weekend as I mentioned!)

http://www.bloomberg.com/markets/economic-calendar/

In the past I have noticed a bit of trading, outside the US I take it, but given that one of the bars before the open had a volume of 900, and the fairly big rally up overnight, I wondered what was up. Anyway, once it started to move at the open, over 3000 contracts, it looked like just another day.

I only stayed up for a bit and went back to bed, but here is what I'm seeing now.

O - The huge rally at the open was a surprise.

A - Hit a high here and fall down to B fairly easily.

C - Climbing up to here and turning back down is exactly at the 50% level, so since price couldn't cross this, the strength of this down move is left intact.

I actually have a short plotted in, both for this reason, and also the 5 min DL you see there. When it broke the first time, there was no RET to be able to get into the down move.

D - The low of 3810 isn't quite at a channel bottom, but it stops here. Funny how I see now that the volume on hitting the low here isn't exceptional at all.

E - The climb up to E would actually be above the 50% of the entire move from A to D, but I didn't mark this in.

F - Coming down to F, this is pretty much the 50% level of D to E, so since we held above this, going higher was more likely, which it surely was!

SLA would have worked really well today, and it does in trending environments, but you get chopped up pretty bad sometimes, so being able to "think" about which retracements are good and which aren't is key. Of course its this "thinking" that needs to be defined so that when you see it, you know what to do or not to do.

That's it for today... have to work on the plan.

 

[bh_prop]

That's it for today... have to work on the plan.

It won't be nears as easy as you think, but it needs to be done. The time consuming part won't be writing out the plan it will be backtesting to determine what works, what doesn't, what kind of probabilities/risk/reward/etc. That part takes a truckload of time.