This sounds like something I can for sure do! The "setup" where the trendline breaks isn't always as neat, and then I'm not exactly sure if I need to fan the trendline or if I would have considered it a break... but if I do this enough, I will for sure develop the feel that I need. I will report at the end of the week!
Trading NQ via Price Action
- Thread starter k p
- Start date
This sounds like something I can for sure do! The "setup" where the trendline breaks isn't always as neat, and then I'm not exactly sure if I need to fan the trendline or if I would have considered it a break... but if I do this enough, I will for sure develop the feel that I need. I will report at the end of the week!
There was this one earlier that I was watching which happened a bit after I posted my journal. Here at "K" I start to draw in a SL across the highs which I would say is just long enough to appear as something I might draw on my 5 min chart. At this point, a huge trending day wasn't as apparent just yet, so I was watching for places where either we took off or might turn down. We have a clear break, but a close back inside right at "L". So this one would be a bit tricky.
Of course, the SL before the open at "A", followed by the break and tiny RET back to the line just above "B" was a killer of a trade.
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There was one more that I was tracking later in the day which set up such a killer move again. The line at M, even though this is the one minute chart, this was quite evident on the 5 minute. Now its true that I might have been able to draw this line in tighter earlier, at Q, and hence a long here actually wouldn't work too well. But I think that perhaps, by the time I looked, it was the line at M that was the proper one. Also, I am for sure in a range now, so I should probably keep this in mind.
At any rate, with price heading down to N, just outside of the outlined range, and finding support, not only at this line which was first resistance and now support, but also at this very long term 5 min SL just below "N", waiting for a break of this 5 min SL at M was a trade to really watch. It just took off! Barely a RET, and although right beside P with the overlap of the two bars of about 1.5 points you can see there must have been a RET in there, if one is waiting for a true RET to print on the 1 minute chart, this trade might have been missed. (I also draw in this hinge that happens earlier at "R", but I'm not sure if I was even watching at this time so no point in commenting on it)
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kp, if you don't do this, then you have deserved none of the help that has been offered to you. If you can't do this, then you should move on to another activity. Trading is not for you.
Reading your journal, I sometimes get the feeling that you are the second coming of increasenow.
Oh yes.. it is finally time. I'm not sure if I understand your second sentence though... "the second coming of increase now"????
A - Before the open, I stated with this 5 min SL below, and when there was a break, here is a lovely RET to go long. But I know that I need to wait for the open to use my 5 min lines. I use the high just above here to draw my new 5 min SL going into the open.
B - Above here, the solid line in a short term DL, and below, the dashed line, is the 5 min DL going into the open.
C - At the open, we essentially start dropping down, but I mark in a possible long here, just based on a 15 sec chart because I thought I saw a bounce off the 5 min DL. This is why it appears in the middle of a line, but the trade would have been placed above a 15 sec bar. This long clearly doesn't work, and although a 15 sec chart is even more in the territory of the algos, with the 1 minute chart being already bad enough, this trade is at least based on something that might be important, that 5 min DL.
D - So now we are breaking out below and I'm looking for the RET back up to the 5 min DL but there isn't one. I do although mark in this short, and you can see the tiny little lines above showing a hinge. In the 15 sec chart, (the insert), this hinge is beautiful, and if it was on a 1 minute chart, it would be a solid trade. But this 15 sec chart can be tricky.
I do also want to note that this short would be an SLA short after the break of the tighter DL outlined... the solid cyan line. So along with the hinge on the 15 sec chart and a legit SLA trade, this one makes sense.
E - We come to rest here, and its 8 mins of consolidation. We break up, but no way can a long be considered just yet after a fairly strong move down.
F - I'm watching for that test of the breakout zone, this would allow me to get into a short at a similar level as the break below of the hinge, and get in as the second mouse. The trouble is that these bars close inside the line. I do mark in a possible short, but it wouldn't fill until 3 minutes later in an area that is very much a consolidation again. So for the purposes of my stats, I'm not sure if this is a legit trade to consider or not.
G - Here we break up, but come back down again. Actually, this break up here happens first, and its when prices comes down again that the short at "F" would fill if the trade wasn't removed. Certainly a long above the next bar works. (but this is marked in hindsight) I do remember ND making excellent notes about how when trading a reversal, she waited for a previous congestion area to clear first. Here we have that congestion area, and now I even notice that we can say we tried to go out the bottom of the congestion area and that quickly failed, so this long marked in here just makes sense to try out the top, but this is all in hindsight by now once again. None of what is happening today makes too much sense so I'm certainly not going to try for a trade.
H - Juicy area again... we come to the 5 min SL. On this bar, we have a close below, on the next bar, we have a close above. I can honestly make a case for both trades, hence both are marked in. The long never triggers but the short would. This isn't a BOPB trade mind you, since we never continued with the BO, but often at these 5 min trendlines, we have either a BO or REV, so it makes sense to track both options.
If I entered this trade at 74.50, I would want to put my stop at just above that high that pokes above the SL, roughly where the long entry would be which is 78.75. Not bad, less than 5 points risk.
After this trade fills, it just doesn't look good. The emotions would want to take an exit because look, its 5 bars of higher lows after the entry! But the highs never break the high at H, so my stop loss would never hit before price comes down, so this trade does in fact work.
Now the question of course is where is my exit? My stats should tell me, and perhaps something like a 2:1 or 3:1 would be nice, especially if I end up having a win rate of 50%, but this I have to figure out. Also, I am wanting to actually trade less. I am looking to get myself into a trade that I can hold longer. Today is clearly not the day for one of those types of trades mind you. Given the context today, it is perfectly legit to take profits I think, but if we weren't at the mean of our channel, and if we were in a place where we bounced off strong support on the hourly chart like 2 days ago, then I would be inclined to hold for a huge trend if the price action supported this. I guess you never know if you will get a trending day or not, but in the first 30 minutes, we already went down and all the way back up again, and also the overnight range was quite narrow in relation to the action in the past few weeks.
SUMMARY
Ok.. that's enough for today. I want to start my homework as suggested by ND, so I will try and do this for the past 3 days and post this later today. In case I'm doing it wrong, hopefully she can point it out before I get too far and only have to redo a few days. Essentially I will look at the trades that set up after the open based on the 5 min trendlines, and watch both the BOPB, as well as a possible reversal since this seems to happen if the BO doesn't take.
J - As up update on the next chart, we have a bounce off that 5 min SL. At entry at 73.25, with a stop of lets say one point above the bar at 77.50 makes this is a 4.25 risk. So far we have hit a low of 67, which makes this 6.25 points, so roughly 1.5 : 1 in terms of reward vs. risk, but price clearly comes up again. Now if I was shooting for at least a 2:1 ratio, I could still move my stop to BE or even at least take profits at 1 times risk once it dropped lower, but my gosh, this is some serious number crunching.
B - Above here, the solid line in a short term DL, and below, the dashed line, is the 5 min DL going into the open.
C - At the open, we essentially start dropping down, but I mark in a possible long here, just based on a 15 sec chart because I thought I saw a bounce off the 5 min DL. This is why it appears in the middle of a line, but the trade would have been placed above a 15 sec bar. This long clearly doesn't work, and although a 15 sec chart is even more in the territory of the algos, with the 1 minute chart being already bad enough, this trade is at least based on something that might be important, that 5 min DL.
D - So now we are breaking out below and I'm looking for the RET back up to the 5 min DL but there isn't one. I do although mark in this short, and you can see the tiny little lines above showing a hinge. In the 15 sec chart, (the insert), this hinge is beautiful, and if it was on a 1 minute chart, it would be a solid trade. But this 15 sec chart can be tricky.
I do also want to note that this short would be an SLA short after the break of the tighter DL outlined... the solid cyan line. So along with the hinge on the 15 sec chart and a legit SLA trade, this one makes sense.
E - We come to rest here, and its 8 mins of consolidation. We break up, but no way can a long be considered just yet after a fairly strong move down.
F - I'm watching for that test of the breakout zone, this would allow me to get into a short at a similar level as the break below of the hinge, and get in as the second mouse. The trouble is that these bars close inside the line. I do mark in a possible short, but it wouldn't fill until 3 minutes later in an area that is very much a consolidation again. So for the purposes of my stats, I'm not sure if this is a legit trade to consider or not.
G - Here we break up, but come back down again. Actually, this break up here happens first, and its when prices comes down again that the short at "F" would fill if the trade wasn't removed. Certainly a long above the next bar works. (but this is marked in hindsight) I do remember ND making excellent notes about how when trading a reversal, she waited for a previous congestion area to clear first. Here we have that congestion area, and now I even notice that we can say we tried to go out the bottom of the congestion area and that quickly failed, so this long marked in here just makes sense to try out the top, but this is all in hindsight by now once again. None of what is happening today makes too much sense so I'm certainly not going to try for a trade.
H - Juicy area again... we come to the 5 min SL. On this bar, we have a close below, on the next bar, we have a close above. I can honestly make a case for both trades, hence both are marked in. The long never triggers but the short would. This isn't a BOPB trade mind you, since we never continued with the BO, but often at these 5 min trendlines, we have either a BO or REV, so it makes sense to track both options.
If I entered this trade at 74.50, I would want to put my stop at just above that high that pokes above the SL, roughly where the long entry would be which is 78.75. Not bad, less than 5 points risk.
After this trade fills, it just doesn't look good. The emotions would want to take an exit because look, its 5 bars of higher lows after the entry! But the highs never break the high at H, so my stop loss would never hit before price comes down, so this trade does in fact work.
Now the question of course is where is my exit? My stats should tell me, and perhaps something like a 2:1 or 3:1 would be nice, especially if I end up having a win rate of 50%, but this I have to figure out. Also, I am wanting to actually trade less. I am looking to get myself into a trade that I can hold longer. Today is clearly not the day for one of those types of trades mind you. Given the context today, it is perfectly legit to take profits I think, but if we weren't at the mean of our channel, and if we were in a place where we bounced off strong support on the hourly chart like 2 days ago, then I would be inclined to hold for a huge trend if the price action supported this. I guess you never know if you will get a trending day or not, but in the first 30 minutes, we already went down and all the way back up again, and also the overnight range was quite narrow in relation to the action in the past few weeks.
SUMMARY
Ok.. that's enough for today. I want to start my homework as suggested by ND, so I will try and do this for the past 3 days and post this later today. In case I'm doing it wrong, hopefully she can point it out before I get too far and only have to redo a few days. Essentially I will look at the trades that set up after the open based on the 5 min trendlines, and watch both the BOPB, as well as a possible reversal since this seems to happen if the BO doesn't take.
J - As up update on the next chart, we have a bounce off that 5 min SL. At entry at 73.25, with a stop of lets say one point above the bar at 77.50 makes this is a 4.25 risk. So far we have hit a low of 67, which makes this 6.25 points, so roughly 1.5 : 1 in terms of reward vs. risk, but price clearly comes up again. Now if I was shooting for at least a 2:1 ratio, I could still move my stop to BE or even at least take profits at 1 times risk once it dropped lower, but my gosh, this is some serious number crunching.
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Ok.. here is what I have... first a diagram to illustrate what these numbers actually mean.
So first I'm just seeing how far price goes above the trendline before there is a RET on the next bar.
Next value is that if as price comes down, I just enter a long at the breakout level of this trendline, how far against me does price go.
Next value is if instead, I wait to enter 4 ticks above (I'm using 1 point since this is the SLA entry rule and seems safer to not get sucked into a move with stops run), then how far against me does this entry go.
But I guess my problem now is how much time am I giving it? On this example, I can see that my Init MFE is about 12 ticks above the trendline. If I enter a long when price comes down to the trendline, price goes against me lets say two ticks and then takes off for 4 or 5 points.
If instead I enter 1 point above the lowest high in the retracement, with an entry of about 78.25, it only goes up to about 80, before coming down again. At first it stopped at 75.50, then went back up again, but after hitting that 80, it broke below the trendline.
So crap, I'm already stuck even before I started! LOL... It looks to me like these stats change for every bar. I'm probably making it more complicated than it has to be, but as I'm trying to do this now, I can see I'm not sure how to continue. For every bar, the trade either works a bit, or doesn't work a bit. Do I just say where am I 10 minutes from now? At the 10 minute mark from each of these trades, do I say how far against me did price go and how much into profit can I be? But then what time value is good... what makes me pick 10 minutes over say 30 minutes?
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Yes, you're catching on. The stats are what they are for each appearance of the setup. Price breaks through a trend line and goes N ticks favorably before pulling back. Price pulls back toward the trend line - does it touch the breakout level? Does it run back inside the breakout level? Does it pivot back in the direction of the break without returning to the breakout level?
Compare trailing a stop 1-4 ticks away and study the results. Once you get enough stats to develop a set of rules, getting 1-ticked into a bad trade won't be a problem because you may discover that the chance of attaining a 1:1 or better target increases significantly enough with the 1-tick trail (as compared to a trail of more than 1 tick) that the occasional trap is a small price to pay for more winning trades.
There are many variables to explore for any given trade idea (setup). Some ideas have to be discarded; others demonstrate positive expectancy over time. Finding a positive expectancy idea and setting ground rules for entry and trade management is a tremendous amount of work, but it will feel like the easiest thing you've ever done compared to developing the mindset to follow your rules without questioning and modifying them.
This was actually my feeling as well. I knew that if you were using a 1 tick entry rule, then this was clearly well researched.
What??? You mean once all the work is done of actually making the plan, putting it into motion is when the real work actually starts??? LOL
The only confusion I have is that time factor. When I evaluate how many ticks the trade has moved against me versus how many ticks of profit, and I doing this with a certain time period in mind? This answer will be different for every bar. 5 bars after entry can have me be 5 points ahead, but 10 bars after entry might have me actually 5 point behind. So I'm not sure at what point I should be actually using to write down my stats. If I go into it thinking lets just see if 2x profit is reached before 1x stop is reached, then I already have to have these numbers set in terms of how much profit and loss I'm looking for. But the idea is to figure out what is attainable, so should I be picking a set time period after which I so called "take my measurement" of this trade?
So just an example of the work I'm doing.
L - Here at L is a break of the 5 min DL that you can see forms from the two swing lows all the way to the left on the bottom.
M - We hit a low and then I start trailing up the entry. At M is the highest point in the retracement, so I mark an entry one point below.
N - This would trigger here, 3 bars later. The entry is at 69. If I use the bar above my entry as a possible stop, this bar has a high of 71.25.
P - This bar here, the high goes 3 ticks above the high of the bar that I would have used for my stop loss. If my stoploss was 3 ticks of less above the high of my signal bar, this would hit, and this trade would end up being a loss of 3 points. Worse, I'm no longer in this trade that ends up going for well over 10 points.
Now if there is anything I'm learning, its that having a very small stop is just asking for trouble. Unless I'm playing a reversal from a very key level and I get in very close to that level, the action of the algos might very well often take me out before I give the trade a chance to work. This moment hit me when I said the other day that I had a hunch that entering a decently set up trade has a better chance to hit a target if the target is a sufficient number of points away along with the stop, with the idea being that more is better.
Of cousre what that magic number is is what has to be tested for. But if by example I enter a trade and use only a 2 point stop or 2 point target, my trade is really at the mercy of the algos or luck. If the trade has a 5 point stop or target, perhaps there is a better chance that my target will be hit before my stop. But of course, it trading the 5 minute bars, and this of course depends on the size of the bars that day, but it almost seems like a 10 point target would be better still. No facts to back this up, but there is certainly a sweet spot. I see it in so many of my own charts from the months of data I have on my own trades, and I see it in so many of the other journals. The constant in and out is just killing us. Unless one has a plan to scalp successfully, then this in and out is based on fear and fear is not your friend when trading.
Now this of course has to be balanced with the context of the trade. If I'm entering a trade because I see the potential for only 5 points before the previous swing point is reached and that swing point is in fact the level at which I want to take my profit, I am certainly not going to give my stop 10 points while only going in for a 5 point profit. Likewise, if the bar that I use to signal my trade is far too too wide, or too far away from the breakout level and hence the level at which I would put a stop, then this trade is no good either as it would have far too much risk. But giving price a bit of room is essential to give traders a chance to actually do what is it they are trying to do without having the random nature of the algos stop you out of a trade.
As an aside, IB left me a note to tell me I have a free subscription to some news feed based on being such a good customer! (LOL... They already have over $1000 in commissions from me! I wish they just gave me a damn good deal on MultiCharts instead.)
L - Here at L is a break of the 5 min DL that you can see forms from the two swing lows all the way to the left on the bottom.
M - We hit a low and then I start trailing up the entry. At M is the highest point in the retracement, so I mark an entry one point below.
N - This would trigger here, 3 bars later. The entry is at 69. If I use the bar above my entry as a possible stop, this bar has a high of 71.25.
P - This bar here, the high goes 3 ticks above the high of the bar that I would have used for my stop loss. If my stoploss was 3 ticks of less above the high of my signal bar, this would hit, and this trade would end up being a loss of 3 points. Worse, I'm no longer in this trade that ends up going for well over 10 points.
Now if there is anything I'm learning, its that having a very small stop is just asking for trouble. Unless I'm playing a reversal from a very key level and I get in very close to that level, the action of the algos might very well often take me out before I give the trade a chance to work. This moment hit me when I said the other day that I had a hunch that entering a decently set up trade has a better chance to hit a target if the target is a sufficient number of points away along with the stop, with the idea being that more is better.
Of cousre what that magic number is is what has to be tested for. But if by example I enter a trade and use only a 2 point stop or 2 point target, my trade is really at the mercy of the algos or luck. If the trade has a 5 point stop or target, perhaps there is a better chance that my target will be hit before my stop. But of course, it trading the 5 minute bars, and this of course depends on the size of the bars that day, but it almost seems like a 10 point target would be better still. No facts to back this up, but there is certainly a sweet spot. I see it in so many of my own charts from the months of data I have on my own trades, and I see it in so many of the other journals. The constant in and out is just killing us. Unless one has a plan to scalp successfully, then this in and out is based on fear and fear is not your friend when trading.
Now this of course has to be balanced with the context of the trade. If I'm entering a trade because I see the potential for only 5 points before the previous swing point is reached and that swing point is in fact the level at which I want to take my profit, I am certainly not going to give my stop 10 points while only going in for a 5 point profit. Likewise, if the bar that I use to signal my trade is far too too wide, or too far away from the breakout level and hence the level at which I would put a stop, then this trade is no good either as it would have far too much risk. But giving price a bit of room is essential to give traders a chance to actually do what is it they are trying to do without having the random nature of the algos stop you out of a trade.
As an aside, IB left me a note to tell me I have a free subscription to some news feed based on being such a good customer! (LOL... They already have over $1000 in commissions from me! I wish they just gave me a damn good deal on MultiCharts instead.)
