Trading NQ via Price Action

[k p]

Whether or not it answers the question well enough will be determined when it's tested.

How are you defining "break"?

Ah... and here is the difficult part.. this is why I can't come up with any sense of even testing profit targets or where stops should be placed. The break is only clear many minutes later of course. Once price is at least a few points away, then I guess I can say it broke. By this point, entering this trade gets risky. If we are now 5 points below the trendline... do I go short expecting another 5 points? If I just took a short at the trendline, I would already have my 5 points of profit. But am I really going to short at the trendline? What if this is the perfect place for a reversal?

So these are the things I ask in my head as well. This is of course where the beauty of the RET comes in because if the break is a break, the RET and triggering the trade 1 point away will make sure price is going in the direction of the break now.

Here, from just today, we have a "break" just to the left of M. Then price drops below and comes back up again. If I was using ND's plan, the fact that price closed below makes this a no go. But there is a RET in there, and 1 tick entry would fill to go long that clearly doesn't work. (Like I say though, because price closed below, this doesn't qualify for an entry for her.)

Here on this chart from Oct 28, when the "break" happens of the SL, it too isn't clean (price goes below the line after it breaks above, and by the time there is a RET, price is already 10 points away.

So I haven't a clue what to do Db. A break means just going above or below the line. A tick means nothing. A point may mean something, but these fail often. 3 points makes you notice now, but price is already getting away from you. I can't just blindly buy or sell at the line, nor do I know what direction to be trading in. Maybe 3 points above the line would be better, but now my stop has to be below the line, so at least 4 points away if not more.

So honestly... I got nothing... absolutely nothing when I actually try and think of a firm rule to test. (3 points is better than 1 mind you)

 

[k p]

I should also add that things seem a bit clearer when I go up in time frame. The 5 min chart is smoother, and the hourly chart almost makes it look easy in terms of thinking well, "we are in a range, so lets buy here, and if it drops below, here is our stop. Once it breaks out of this range here, lets just go long here, etc. But all of this requires bigger stops. So when going back to the 1 min chart for entries, it gets more confusing, but I love how the higher time frames smooth things out if that makes any sense.

 

[dbphoenix]

So I haven't a clue what to do Db. A break means just going above or below the line. A tick means nothing. A point may mean something, but these fail often. 3 points makes you notice now, but price is already getting away from you. I can't just blindly buy or sell at the line, nor do I know what direction to be trading in. Maybe 3 points above the line would be better, but now my stop has to be below the line, so at least 4 points away if not more.

That's why you have to define it. If you don't define it, you have nothing to test. If you have nothing to test, you can't formulate a rule.

Is a break a "close" beyond the line or is penetration enough?

If a break is a "close" beyond the line, may price return to the other side of the line while retracing or must it clear the line and stay beyond it?

This is extremely easy to define: yes/no, black/white, right/wrong, 1/0.

 

[k p]

That's why you have to define it. If you don't define it, you have nothing to test. If you have nothing to test, you can't formulate a rule.

Is a break a "close" beyond the line or is penetration enough?

If a break is a "close" beyond the line, may price return to the other side of the line while retracing or must it clear the line and stay beyond it?

This is extremely easy to define: yes/no, black/white, right/wrong, 1/0.

It of course makes perfect sense to me that in order to have a rule, it has to be tested, and in order to test it, you have to define it.

So its probably just a matter of staring at this long enough to see if something regular enough jumps out. Having yes/no answers is easy, but coming up with the right questions is the hard part. The question is in fact the crux of the problem.

If the question is, does 1 point above a treadline lead to a profitable move, and this has only a 30% yes answer, this sucks. But if the quesiton is, does a penetration that goes 3 points above the trendline lead to a 10 point profit before a 5 point stop is reached, and if the answer to this is yes 50% of the time.. then I know I got something!

 

[dbphoenix]

It of course makes perfect sense to me that in order to have a rule, it has to be tested, and in order to test it, you have to define it.

So its probably just a matter of staring at this long enough to see if something regular enough jumps out. Having yes/no answers is easy, but coming up with the right questions is the hard part. The question is in fact the crux of the problem.

If the question is, does 1 point above a treadline lead to a profitable move, and this has only a 30% yes answer, this sucks. But if the quesiton is, does a penetration that goes 3 points above the trendline lead to a 10 point profit before a 5 point stop is reached, and if the answer to this is yes 50% of the time.. then I know I got something!

It has nothing to do with staring. It has to do with drawing your lines as you've defined them, defining what you mean by a "break", then collecting data to answer the questions I asked.

 

[k p]

It has nothing to do with staring. It has to do with drawing your lines as you've defined them, defining what you mean by a "break", then collecting data to answer the questions I asked.

Ok... I will continue with this. I for sure need to first come up with a definition for break, only then can I collect data.

 

[FeetFirst]

Re: 28th Oct

You would probably have had a 12 tick loss from the long at 9:39 and then up to a 54 tick win on the long at 9:43 depending on your exit criteria. I would classify this trade as a breakout pull back from a range rather than a trend line break.

1. Show of strength\weakness (breakout of TL, Range or Triangle)
2. Retracement
3. Continuation...

 

[k p]

Hey FeetFirst... thanks for stopping by.

Lets me put down what you wrote on a chart. (I wonder how Wyckoff ever did this stuff by reading tape without ever looking at a chart!!!)

So I've got the range marked in that I think you refer to.

A - Here is the first long entry, and a tight DL would break and the black down arrow is exaclty where a 12 tick loss would be... so this lines up with what you're saying.

B - Here is the second long. (Gosh, it sure would be hard to take a long again after already losing 3 points, but if it triggers... price is going up!)

C - Here is where this new DL is breaking... but since you say 54 tick profit, this clearly isn't where the exit is made.

So I do have to wonder why no exit here, but why an exit after the entry at A.

D - Coming down to here is a higher low of course from where our second DL connects.

E - This low here doesn't break below D, so I figure this is why we are still in, and everything after this doesn't penetrate this low either.

F - Drawing in a new DL, we have a break here, and at 79 is exaclty where 54 ticks profit is from the second long entry. It seems odd to exit right at the line break and not give price a little bit of room. If anything, perhaps waiting for a swing low to break would be even better, but price never did go higher after this anyway so it is a great exit. I'm just not sure if I see enough reason to exit here, unless its at somewhere else where price hits this price level to lock in a 54 tick profit.

Anyway, I do like your analysis of breaking out of a range. There is even that range a little higher up, around D and E that also breaks higher, but not much more to be made if you're gonna wait for a RET up there.

I do wish I knew if I was on the right path with these long term trendlines. Looking at the previous hour before the open is very much how Db shows his stuff, so this totally jives with how I'm trying to learn as well. Its funny how the 3rd bar after the open retraces back down to the top of the range I outline and takes off from there, so this could be another place for entry (as seen on a tick chart mind you). I'm sure that Db takes entries much sooner than as outlined in the SLA stuff. A RET can after all be on the tick chart, and the sooner you're in, the bigger the profit and the smaller the loss... but this is an expert move for a nimble trader! 40D was another guy from last year who illustrated using retracements on tick charts.

Anyway, your 3 step approach makes total sense and I like how this is more about following price and trading behavior as opposed to just collecting stats. But alas... to backtest this seems tricky because too much of my brain is involved. At least with hard facts, the numbers wont lie.

 

[NoDoji]

If the question is, does 1 point above a treadline lead to a profitable move, and this has only a 30% yes answer, this sucks. But if the quesiton is, does a penetration that goes 3 points above the trendline lead to a 10 point profit before a 5 point stop is reached, and if the answer to this is yes 50% of the time.. then I know I got something!

This is how I studied various setups. There are many "somethings" to be got if you keep at it.

 

[FeetFirst]

I don't subscribe to the 4 tick above the bar high rule so my entry is 4065 and my stop loss is 4062 - one tick below the signal bar's low. The second long has a 15 tick risk.

I'm not an SLA trader so I don't need to exit on DL breaks.

I think you could reasonably expect between 41 ticks (measured move at 4074.25) to 54 ticks depending on how you manage the trade. I think an exit at 54 ticks would be based on the TL break, moving below 20 ema, time of day, distance already moved, sluggish momentum, failure to make a new high in 17 minutes...