Trading NQ via Price Action

[k p]

As you're not trading the SLA, I don't contribute to this journal any longer. However, I do read it occasionally to see how things are going. Lately I've noticed quite a few entries -- largely from trolls -- that are less about your process and more about me. Since none of them understand what I do, these comments are not pertinent. However, since they are about me, I feel compelled to re-enter the fray and clear up some confusions.

Since you believe that you are in the weeds, the first task is to return to the path. So, return to the path and begin again at the beginning:
.......................................

So after these months, what kind of trader have you decided you want to be?

Hi Db. Thanks so much for checking in.

Right now, I still cannot answer what type of trader I want to be, and the lack of an answer very much reflects in my results. On the one hand, I think its absolutely possible to derive a daily income from trading intraday, but at the same time, looking at the daily and hourly chart, it seems obvious that using AMT and price action on a higher time frame chart leads to more profits with less stress. In my idealized world, I would have two accounts to trade both of these time frames, but before that can happen, I suspect that I have to learn to do at least one properly first.

If I may take a minute to perhaps explain how I believe I got myself into the weeds. I could see that trading the one minute chart would often stop me out. This was around the time that both Niko and I were still working together, early spring, and many of the days, price just wasn't trending well enough. Through a bit of testing and using your old charts, I also saw that in real time, my lines wouldn't be exactly drawn as yours because they would be tighter and hence break. In my attempt to do a good job, to follow precise rules, I see that I wasn't giving price enough room. When I did try it live with real money, this made it that much more important have a good result, but this of course meant trading via P&L and not trading by focusing on trading well. (I haven't exactly established what trading well looks like yet though)

So some of these retracements began to scare me, as if I couldn't trust them because so many wouldn't work. On top of this, I didn't know at the time that I had charting issues, and because of a time difference between my platform and the exchange time, my bars weren't drawn properly, so some retracements that were there I couldn't see because my 1 minute bars were still forming.

Going forward, as the losses became consistent, tunnel vision started to set in, and I would consider it a good day to be up $50. (never mind that the losing days were between $100-$200) I still considered this at the time to be simply good preparation to test myself, to learn about how I react in an environment like this. I've always played it safe in life and have been quite responsible, so I thought of this exercise of trading with real money to at least be useful in that I could learn about myself and about what does or doesn't work.

Anyway, going over so much material from the past year, there have been so many excellent charts that you have commented on which didn't follow SLA rules, but did take into account AMT and following the behavior, trying to figure out what traders want in their quest to put on trades. Even trading hinges doesn't exactly follow SLA rules I don't think. So many of my journal entries therefore follow this path, trying ti figure out what traders want. In some respects, I really enjoy this, it fuels an intellectual need, but the financial needs were clearly not being met. There seemed to be solid reasons for why not every retracement is as good, and if one could figure this out, he could be more selective with what retracements he takes. This was also especially more important if one gets their levels properly and makes sure to only trade at these levels. When I looked at an hourly chart, I often saw too many levels, which then makes this not every useful, and these levels were also not precise enough... the level would be more of a range.

So pure mechanical SLA was something that I had convinced myself I couldn't do, but I never did get to the level of being able to read price properly. A huge part of this as you pointed out was that I wasn't using context. This is also what made the help that ND provided so welcoming. The use of 5 minute trend lines provided this context, and her explanations of trading just the one minute bars and trying to beat out the algos, which she saw through her testing that she couldn't do consistently, really resonates with me. Its quite the experience to look at a chart at the end of the day and notice an 80 point move up and yet not be able to take advantage of it because when you zoom down to the one minute, even though the trend might show, many entries would stop you out if your stop loss is only 3 or 4 points. (which to a new trader seems like plenty when you consider this from a P&L point of view) So context I could see certainly made a huge difference, but when it came time to trying to find an entry and holding a trade, context was out the window.

I think I also tried to incorporate what 40D was showing and doing because there were some great discussions last summer/fall between you and him that provide excellent teaching tools. It seemed that he would never sit through even a minor RET if he wasn't already in they money, and he had quite the skill of finding really good entries, so I spent quite a bit of time trying to figure out where the good entries are. I'm of course fully aware that I can't just copy what someone else is doing, I have to make it my own, but this was the goal, to learn what he is doing, and then to see if I could also make it work for myself.

Anyway, so the point of all of this is that quite a few good ideas/methods were all mixed into one, but none has clearly been mastered. By day trading the 1 minute chart, this should provide lots of opportunity to learn and put on trades with less risk than what has to be necessary with trading the hourly chart. So going forward, I do still think this makes sense. But taking purely mechanical SLA entries wasn't working for me at the time, but this is perhaps due to the characterizations of the market at the time. On top of this, in these past few weeks, the major moves have been having prior to the US trading session, and being on the west coast, I simply cannot get up early enough to take advantage of this. So when the US session opens, other levels are tested first after the open before the trend continues as Roffe was so kind to point out. This makes perfect sense when you know about the context, but difficult to trade when I'm just looking at price first shooting up, then very quickly back down, and then very quickly up again, all with V reversals and not that many good RETs in sight like on Friday. As price hit the low of 3780 after such a strong move down, the last thing I think I should be doing is looking for a trade counter to the down trend at the time.

I know after writing all this, I still haven't answered your question, and answering what type of trader I want to be is of course pivotal to being able to steer this journal in the right direction. But perhaps if you have the time to make any sense of what I said, this would be very much appreciated. My ultimate first goal is to attain some level of consistency and profitability. Many people have said that by taking the longer time frame approach, they found this easier to become profitable, but seeing as I'm not comfortable in a trade that isn't working for me fairly quickly, I'm not sure if my nerves at the moment can take the necessary wider stops (and not using lines or having to give price room, these stops would for sure have to be wide!). Furthermore, being so much more aware now of what type of retracements and price movements are inconsequential to the main trend, perhaps by not even using lines, I could make SLA work much better, but this would mean skipping the purely mechanical approach, and this just gets right back to having to figure out what type of rules I will have for skipping some trades and backtesting all of this.

Once again, given what I said above, "My ultimate first goal is to attain some level of consistency and profitability", can you shed some light on how to move forward if you can make sense of any of my ramblings? Is using a higher time frame such as the hourly chart the way to move forward? Is it learning to work with SLA again but not adding in the lines and instead using swing points as reasons for an exit? Is it perhaps using SLA on a 5 minute chart?

Thanks for stopping in!

 

[dbphoenix]

I can't answer the questions for you, and the only one who can sort through all this is you. And in spite of all the detail you've provided, you still haven't addressed the questions, and after more than a year, you ought to be able to do so.

So look at them again, separately. You can't move forward until you decide what you want:

1. What do you want to accomplish with your trading:

• Is it recreational?
• Supplementary income?
• A part-time job?
• Do you want to make a living at it?

2. Do you have any idea what sort of trading is most comfortable:

• Long or intermediate-term trading?
• Short-term trading?
• Day-trading?
• Trend-trading?
• Scalping? (Note here that a short-term trader, for example, does not become a long-term trader just because his stop was hit and he didn't sell; a long-term trader doesn't become a short-term trader because he chickened out and sold too soon. Each of these approaches is selected deliberately and for thoroughly-considered reasons.)
• How patient are you?
• How adventurous?
• Are you a leader or a follower (most people think they're leaders)?

 

[k p]

The answers to the questions I think are fairly easy for me, but given my goals, I'm not sure then what the best way is to achieve them. But for completeness, here they are.

1. Make a living at it.

2. a) In terms of the type of trading, I see the benefits of all, especially once you can see how the day is shaping up, and certainly if you use the context of AMT to see where you are in the trend. So ideally, being able to utilize the various types of trading is best, but mastering just one first is perhaps the essential bit.

b) In terms of patience, I certainly see that being in a trade that wasn't going my way brings stress, but at the same time, being already ahead a good number of points would also make me want to just take what I have so as not to lose it. So patience thus far has been lacking. I do know that this is a result of fear, and this can be solved with a solid plan, especially one that has a firm exit. So I think patience can be worked on.

c) In terms of how adventurous I am, the idea that I have in my head is that if I can learn to make a few points, I can then increase my risk taking to go for the bigger gains. If I lose, I could always go back to the system I was using to make a few points since I would have a fall back plan. At the same time, if I learn to make a consistent few points, then this would mean that I have learned to build a plan and follow it with discipline, and these same skills would then be easy to transfer to trading longer term for the bigger gains.

d) I have no need to be a leader when it comes to trading. In some respects, since this is such a personal journey, even if I am following someone else's method, I do still have to own it, so even though the foundation may not be mine, its still me who it calling the entries and exits. But I am completely happy to follow someone else's method as long as its something that I fully understand and know how to exploit.

I know that many of my problems stem from mixing up all of these types of trading. The intention is to ride a trend up 40 or 50 points, but clearly my exits would make it appear as if I am scalping, and often getting in and out is about all I could stand. The psychological benefits of the longer term approach by using hourly bars are enticing, but going forward, I am under the impression that practicing more by having daily trades is something that I need. I certainly don't want to be in and out 10 times if the trend is only going one way, but often there are at least 2 or 3 trends in one day, so although the daily might show price is still going down as an example, I can see that on a 5 minute or 1 minute chart, there are lots of places to go long.

Anyway, it does seem like I really need to to solve this. As I finish this post, continuing with day trading, but making sure to use AMT as the "wind at my back", along with the 5 minute trend, is what makes the most sense to me right now given where I am, my goals, and all the work I have put into it. But I certainly don't want to be in and out 10 times during just the first 2 hours. The scalping I have been doing comes from fear along with the idea that I can slowly make back whatever losses I have, and this has been a costly distraction, both in time and money. There is no point in trying to beat out the HFT firms, and its just too much work, nor do I think I can build a system myself. The allure might still be there, especially if I think that I can just go in for 5 contracts and hence even a 2 or 3 point gain is significant, but the computers really have this much better figured out than I do.

So daily trading, focusing on going with the trend is I think the best way forward.

 

[dbphoenix]

You appear to be somewhat self-aware, but this self-awareness isn't translating itself into any sort of well-thought-out plan of action. For that, you must make some basic decisions. Deciding to go to war is pointless unless one has also decided how he's going to get there.

These steps are not a locked-in progression. One might decide, for example, that he wants to trade trend, though he may not know exactly why. Once he's moved on to Step 3, he may find that, no, trading trend is not for him, for whatever reason(s). So it's reasonable and prudent to go back to Step 2 and rethink some issues with this new data. That's the essence of the Scientific Method.

You, however, even though you appear to be trading, are still in the observation phase (also Step 3), and while this period of "play" is important, playing for more than a year is beyond excessive. Unless and until you decide what kind of trader you want to be, you will be unable to get past the observation stage into the hypothesizing, testing, and trading plan development stages. If you choose instead to do all of this simultaneously through multiple personas, then it is likely that in a year you will be at more or less the same place that you are now. Some people go on for twenty years this way.

Exploring multiple approaches via multiple personas simultaneously requires an extraordinary degree of organization and discipline. And even if one eventually finds something that performs in a superior manner, he may also find that he isn't comfortable with it and that he has to start over.

You've received a lot of suggestions and will likely receive many more. However, unless one knows what you want, it is unlikely that these suggestions will have any lasting effect. Begin, therefore, by deciding just what it is that you want. Once you've made that decision, monitor your behavior and compare it against your stated goals. If there is a mismatch, i.e., if you think you want to trade trend but you find yourself scalping, then whatever trading you're doing will guide you nowhere.

 

[k p]

You appear to be somewhat self-aware, but this self-awareness isn't translating itself into any sort of well-thought-out plan of action. For that, you must make some basic decisions. Deciding to go to war is pointless unless one has also decided how he's going to get there.

Exploring multiple approaches via multiple personas simultaneously requires an extraordinary degree of organization and discipline. And even if one eventually finds something that performs in a superior manner, he may also find that he isn't comfortable with it and that he has to start over.

You've received a lot of suggestions and will likely receive many more. However, unless one knows what you want, it is unlikely that these suggestions will have any lasting effect. Begin, therefore, by deciding just what it is that you want. Once you've made that decision, monitor your behavior and compare it against your stated goals. If there is a mismatch, i.e., if you think you want to trade trend but you find yourself scalping, then whatever trading you're doing will guide you nowhere.

I do actually have quite a clear idea of what I'm after, but certainly the well thought out plan is lacking. I would have never known this actually had I not started trading and seen for myself the fear responses that happen as a result of price moving against me. When in the trade of course, it was only then that I realized how many holes there were in the plan because I didn't know if I should hold on, or exit, or even simply reverse the trade.

The multiple approaches method does appeal to me, but once again, if I can't do even one approach properly, then there is no chance I can do them all simultaneously, or be able switch from one to another based on market conditions. I really felt like a ball bouncing around, going from scalping to seeing that price is in fact trending and wishing I had stayed in the trade, and then gone back to scalping again because it appeared as if price had already run up so far and hence holding seemed too risky.

Part of my problem over the past few months has been trying to rationalize the difference between looking at setups and trading behavior. In some respects, I think, perhaps foolishly, that trading behavior is difficult to see on a chart as it comes from watching price in real time. If I nail this behavior down to a very precise set of parameters, which on chart would therefore equate to a certain setup, then I am essentially just trading patterns. When everyone encourages backtesting, it seems to be too much rooted in trading patterns. ND is of course the expert of having every setup figured out down to the tick, so this clearly works.

I know that you say that one has to understand the behavior behind the pattern, and this definitely jives with me. So part of all of this observation phase has been trying to see if I could see the behavior behind what the traders want and then make appropriate trade decisions. The money factor certainly made everything go down hill once I was in a trade though. If you have the time, could you comment how to rationalize how watching price in real time fits in with studying behavior, and how this relates to backtesting and what this means in the face of not wanting to trade patterns? Some people have commented on so many of my journal entries involving the word "I" or what "I think", as if I was making this about me. I know the market has absolutely nothing to do with me, but it seems like for successful trading, my brain has to be a component, not simply just a machine that clicks when it sees a setup. I know you have said to me before that all the word has to be done prior, but so much of the stuff I've read from the past where you comment on price as the day is unfolding seems to contain analysis as price is moving, so I'm still not too sure how this analysis fits in with how to trade and how this fits in with backtesting.

In a way, there have been far too many suggestions, and this has caused me to be all over the place. The negative feedback in the past few days I have been taking especially hard, but at the same time, constantly updating this journal as I have been doing has produced some good posts, especially from ND who has provided a very concrete form of seeing and how to act based on what I'm seeing. So much of my trading had fallen apart because I didn't know how to enter, or where my stop loss exit should really be. (The profit taking was unfortunately always just after I had several points. Fixing just this one problem of not letting the profits run could have very well produced a much better result.) I have also enjoyed Alpha Trader's inputs as he has used context to explain how the day was shaping up. So this is the type of help that I find extremely beneficial, but I also see that far too many opinions have been having a negative effect on me.

Anyway, if you could comment on my question above Db I would appreciate this. I'd love to be able to have a very good grasp of trading behavior, how it fits in with backtesting, how this differs from trading patterns, and what it means to be thinking while trading live, or what one should be thinking. Thanks!

 

[dbphoenix]

If for the time being you have chosen to daytrade during regular NY mkt hrs, do you want to begin collecting data related to trading trend or to scalping? If you can't decide, then all other questions are irrelevant.

 

[k p]

Yes, trading the NY mkt hours would be an excellent way to focus and trading trend would I imagine be more beneficial in the long run.

With scalping, behavior is more than likely less of a factor, and then trading "setups" would be the way to go, and in this case, building a statistical framework would be much easier since there would only be a a few factors to consider, the result would be known right away, and there would be plenty opportunities to practice and plenty of setups on a chart to test. (as an aside, I did see that trading regular SLA retracements worked well for scalping if you just took a profit after a point or two. I could make my points in seconds. The drawback of course was not being in the trade once I saw this it went 10 points in only minutes without me, and hence why trading trend I know will lead to bigger profits)

So can you comment further now that I outline trending trend is the goal?

 

[dbphoenix]

Yes, trading the NY mkt hours would be an excellent way to focus and trading trend would I imagine be more beneficial in the long run.

With scalping, behavior is more than likely less of a factor, and then trading "setups" would be the way to go, and in this case, building a statistical framework would be much easier since there would only be a a few factors to consider, the result would be known right away, and there would be plenty opportunities to practice and plenty of setups on a chart to test. (as an aside, I did see that trading regular SLA retracements worked well for scalping if you just took a profit after a point or two. I could make my points in seconds. The drawback of course was not being in the trade once I saw this it went 10 points in only minutes without me, and hence why trading trend I know will lead to bigger profits)

So can you comment further now that I outline trending trend is the goal?

Eventually, perhaps, though I can't think of anything that I haven't already said in the four journals I posted.

In the meantime, review Step 2:

The second step is to decide what you're going to trade and when you're going to trade it.

• Have you found an instrument -- futures, stocks, ETFs, bonds, options -- that provides you with the range and volatility you require but also the safety that enables you to relax and trade in an objective and rational manner?

• Have you yet found a time (5m, hourly, weekly) or tick (1t, 200t) or volume (1K, 100K) interval that gives you enough trading opportunities but also gives you enough time to think about what you're doing? If you want to limit your trading to the "morning", are you physically and psychologically prepared to trade all day? If not, can you shrug off whatever opportunities you may miss by limiting the amount of time you spend trading?

 

[k p]

Eventually, perhaps, though I can't think of anything that I haven't already said in the four journals I posted.

Eventually? Now would be good!

Step 2 I would consider solved: trading NQ during the first few hours of the NY trading session using the 1 minute bars. (with of course the addition of the hourly/daily chart for context, and the 5 minute chart used to gauge the current trend/change in trend)

Its that "trading behavior" vs. "trading patterns" vs. "thinking in real time" that I was hoping you could elaborate on. But I know that much of my downfall has been a lack of testing and constantly remembering that in real time I wish I knew what to do, and this 'knowing' can only come from being aware what has happened in the past given this same "set-up".

--------------------

So on that note... I do think its time to take a break from posting.

I have been going back and forth too much and spending far too much time posting, not focusing on just doing things my way or based on the things that I can see. I will miss ND's excellent illustrations of how to use price action (perhaps I can catch her posting in other journals), but the framework has been outlined well, so I just have to learn to use it for myself. I will of course keep updating my journal when I have something worthwhile to update, but for now it just seems smart to take a step back in order to take a step forward.

 

[k p]

Going over some of my notes from the previous Ghost/Son threads, I came across this exchange between Db and 40D. I am attaching a slide I made of this, with full credit going to Db and 40D of course since this is their work. (Once again, I'm learning to make this analysis my own not just copying.)

In red, Db's contribution, the second last paragraph contains a juicy bit of analysis in regards to a pre-market range, and then a test up and down before a winner is ultimately revealed. When I compare this to what happened on Friday, it is chillingly similar. At "A", on the second attachment (the 5 min chart from Friday) we have the pre-market range, drawn with a mean around 96, followed by a quick rise up to B, and then a quick drop down to C. This move from the mean to B and then from the mean to C is practically identical and beautifully symmetrical. The fact that this happens at the previously mentioned support then resistance level of roughly 3793 taken from the hourly chart is also perhaps no coincidence.

There is an elegant beauty to this analysis that I quite enjoy. I don't know how to make use of this in real time and I don't know where my entries or stops would be. I especially don't know how to backtest behavior, but I know there is something to this.

Going back into hiding now.