Trading NQ via Price Action
- Thread starter k p
- Start date
I guess I'm still working on what it will be. You see, that trade yesterday that I missed off 93 was spectacular, with huge upside potential and a well defined risk. But it wasn't the BOPB entry as ND defines. There are too many things that sometimes happen not exactly according to that plan, although the use of the 5 minute trend line is I think essential. I'm for sure circling around what I want to do, but nailing it down has been a bit elusive.
Several reasons. First, since the SLA method was backtested, I assumed I could just go and use it. But I saw that my fear prevented me from taking every trade. Of course the rule is that after 2 stop outs, you wait for price to go somewhere else. So when it got to somewhere else, I would have that feeling of missing out that I didn't take the last retracement to get me to this next price level. And of course once you start again, you are in the next area of consolidation. Also with SLA, I could see that my lines were drawn too tight, and if one is to lose them, having a good definition of the types of retracements that are a worry and should make you exit a trade, or the types that are just part of a consolidation are essential. So in a way, I think the SLA has to be backtested by the individual trader himself when you consider how differently the trader might be interpreting the instructions.
So then since I was going to have to do backtesting, and since I saw that a tight SLA stopped me out too often, I started to look for other things. I focused on levels, on trading at the extremes as outlined by AMT. But then I didn't have a good set of rules for getting in, nor did I know where a stop should be (my trading with real money consisted of an exit based on the emotions of losing a certain amount of money per trade... clearly wrong). Once again, that all important understanding of a retracement, whether this one is of the normal variety as price is going up, or something that should signal an exit, was still not formulated.
Then of course I started to get into multiple time frames and I wondered how would I even test SLA if I'm also having to consider context. So just to test one day, it seemed liked I would have to develop all the context necessary for that one day (ie. where is my channel, where is my mean, where I am in this channel, where are my rejections on the hourly and daily chart). Just setting this up seemed like a huge amount of time, and now there were far too many variables.
I got as far as printing up 3 months worth of charts with 1 minute bars, outlining the overnight range along with the PDH and PDL. So then I could sit in bed at night and study this in detail, backtesting with my eyeballs if you will. I tried using overnight levels, but this proved inconclusive. Sometimes they provide a great reversal, other times it was as if traders didn't even know the level was there. And of course, these 1 minute charts didn't have the necessary context on them.
Plus, and perhaps this is the biggest reason, I was fighting the urge to trade setups. I really wanted to trade behavior, and since behavior doesn't exactly always work to the tick, nor is it apparent on a static chart where you can't see the pace, then this critical piece is lost on a chart.
These might all sound like excuses, and in a way they are, but there were far too many things going on in my head to actually be able to sit down and test just one thing. If anything, I saw taking trades at just an overnight level was not conclusive enough... so I managed to drop that. I was scared that I would spend so much time testing something only to find myself going after something that was actually a random occurrence.
Now in my defense, even though I registered on ET last August, I only started this journal in February and spent quite a bit of time trying to get up to speed. I was the late comer, and I had all the previous threads to go through in addition to everything we were discussing in chat. So I am at 9 months now, and still I guess behind given your suggestion that if one does this right it might only take 6 months, but I don't think I'm too far off in the weeds or too badly damaged. I have developed a bit of fear, but my perseverance is far too strong.
This is where you have went awry imo. You seem so intent on having a means to catch every little wiggle in the market. And of course you can't identify strict rules to follow when using so many different approaches. Start with the basics: identify the rules for 1 setup, backtest it over N iterations at the hard right edge. Once you are comfortable with the typical risk/reward scenario for managing that setup, then and only then move on to the next one. You are absolutely kidding yourself by thinking you can master multiple trade entry methods when you can't even muster the discipline to master one!
Hmm.. actually I don't. In the scientific method, I think its very important to isolate each variable. You wouldn't change two things before you run the experiment again because then you don't know which of the two caused the change. But when it comes to trading, I've never heard this before, so I'm not exactly sure what "controlling variables" is or how to do it.
Correct. You can't change two things at once. One variable is controlled. The rest are uncontrolled. Once you have your results, you can then begin to determine the influence of the controlled variable on everything else.
You've stated bagsful of hypotheses; you just haven't put them in If/Then form. I suggest you start there. That will give you something to test. That will give you focus.
As an aside, given what you wrote above, I should point out that the SLA is not a setup; it's an approach. The approach relies on one strategy: the retracement (or pullback or whatever). However, there are a number of "setups" in this approach using this strategy, e.g., hinges, breakouts, retests, and so forth. Each one of those setups, however, was thoroughly tested. This enables me to trade without fear. If you don't do this, the fear will always be with you.
You've stated bagsful of hypotheses; you just haven't put them in If/Then form. I suggest you start there. That will give you something to test. That will give you focus.
As an aside, given what you wrote above, I should point out that the SLA is not a setup; it's an approach. The approach relies on one strategy: the retracement (or pullback or whatever). However, there are a number of "setups" in this approach using this strategy, e.g., hinges, breakouts, retests, and so forth. Each one of those setups, however, was thoroughly tested. This enables me to trade without fear. If you don't do this, the fear will always be with you.
That is a great "aside" and certainly helps to bring some clarity. So in this way, I feel I'm not too far off if I focus on just using the RET for the setups that you mention (hinge, breakout, retest).
I fully believe that fear will be completely eliminated with a tested approach, so I'm not paralyzed by my fear in the slightest since I know the beast can be tamed.
Its also interesting to me that although I haven't tested these things and actually journal the outcome in some sort of spreadsheet form, just by way of using my brain to recollect (which is sometimes not the best because of the survivor bias though), I can see that if I just did what I know I should do, my results would have already been so much better. Simply eliminating the "chasing" trades would be huge to my bottom line thus far.
Having a plan is one thing, and of course important, but doing so many wrong things at the wrong time, and not doing the things I should be doing at the right time, is I think by far my biggest downfall. (that, and the fact that commissions have eaten up over a third of the losses to date! by trading less, you're actually more likely to not exit at the worst place just before price comes back to you and the trade actually takes off, and you're also saving on the cost of the commissions)
I fully believe that fear will be completely eliminated with a tested approach, so I'm not paralyzed by my fear in the slightest since I know the beast can be tamed.
Its also interesting to me that although I haven't tested these things and actually journal the outcome in some sort of spreadsheet form, just by way of using my brain to recollect (which is sometimes not the best because of the survivor bias though), I can see that if I just did what I know I should do, my results would have already been so much better. Simply eliminating the "chasing" trades would be huge to my bottom line thus far.
Having a plan is one thing, and of course important, but doing so many wrong things at the wrong time, and not doing the things I should be doing at the right time, is I think by far my biggest downfall. (that, and the fact that commissions have eaten up over a third of the losses to date! by trading less, you're actually more likely to not exit at the worst place just before price comes back to you and the trade actually takes off, and you're also saving on the cost of the commissions)
How about just run an analysis of the BOPB for one week's worth of trades during regular trading hours?
Start a spreadsheet and label some columns, for example:
Init MFE (max number of ticks price ran through the trend line before pulling back)
Lmt at BO (MAE if a limit order is placed at the breakout price zone and gets filled during the pullback)
Trail Stp (MAE if you trail a buy/sell stp entry when price pulls back to the breakout zone, or pulls back at least N bars, or whatever criteria you choose)
Then analyze whether price manages to progress favorably 1x, 2x, 3x, etc. the MAE in these instances.
Make notes about certain behaviors that nullify a signal (such as my personal rule about not trailing a stop entry if price closes back inside the breakout zone).
Make notes about the overall environment leading into the trend line break (break of an existing well-defined trend, or break of a symmetrical triangle, or break out of a wide channel...). Compare the results to the environment.
Just do this for a week's worth of appearances of 5-min trend line breaks and see if you don't start seeing something of great value to build on.