Trading NQ via Price Action

[trader198]

I think losing $5000 would be much more fun via trading rather than just giving it away. What's the expert gonna tell me? That I need to develop a thoroughly backtested plan that has a statistical edge? I already got that info for free!

when I donate $5k to Church, pastor's eye beams up, I like that. when I saw a homeless, he asked for help, if Iwrote a $5k check to him, he will trash it and says " that is a fake ". If you turned your $5k into penny coins, that will be a big bag of money! lots of fun. if you converted into Japanese yen, .. you are too rich, millionarie+

what makes me fun is how to turn $5000 into a big piles of money, then throw it away to those who really needed, you will feel really really good.

trading is not about losing or gaining. It is all about control yourself. The market is out of control. Control myself is fun.

 

[Alpha Trader]

What out there is considered good? How many trades for successful traders are winners vs. losers, and especially in relation to risk:reward ratio? What should I be shooting for?

My stats show a win rate of 83-89%. There are a number of reasons for this.

First off, I am VERY selective in the trades I will take. I am a firm believer in trading less. The advantage with this is many folds. The setups I trade will show up only few times a day, so on average I will have 6-15 trades a day (over multiple equities). This may be low, but since I am so confident in my setups, it allows me to put on good size, which makes up for the low number of trades. Trading less also allows you to conserve your energy, keep your emotional level close to "zero" and most of all, it allows you to manage your trades as efficiently as possible.

The other thing is that I will only enter trades which have a MINIMUM of a 1:4 R:R. Anything under this is ignored. Later in the day, when the market slows down a little and levels have been determined, a 1:10 ratio is attainable, but it is not as frequent. Collectively, the average on my ratios is 1:5.7 - 1:6.6. I am allowed these ratios as I get in on a trade in very tight areas with an expectation of a good move.

Trade management is also crucial. On entering a trade, I pay very close attention to the price action for the first few minutes. I want to know that I have entered a trade where the "herd" is all moving in the direction I have chosen. If the trade does not act as I anticipated, I will become very miserly with the movement I will allow. The aim of getting out of a trade that is not working is to get out at B/E. If this is not possible, then taking a small loss is the next best option and taking a loss in this business is very acceptable. It's like paying tax; nobody wants to, but everyone accepts it as a cost of doing business.

In saying this, you have to take note that I mainly trade equities. Hence, the above figures are all based on trading equities. I doubt I could replicate these results trading NQ, CL or ES. I choose to trade equities as it allows me the freedom to move around and look for my setups. I can also have multiple positions playing, which also keeps me nicely diversified. The other advantage is that you do not have the expertise trading collectively in these trades compared to trading in the index futures. The only advantage I see with trading these futures is the liquidity it provides. You can be in and out very easily with very little slippage. As for now, I am not that big in my volume and would only have an issue if I was trying to trade 5-10k shares, which I don't. I mainly trade stocks that range between $50-100 with a daily average volume of over a million.

All in all, each instrument has it's own unique stats and each individual will have and equally unique result depending on their style and temperament. Some people do well in one and others excel in another.

 

[k p]

What a day this is shaping up to be. Lets do a bit of analysis.

So first I note the 50% level of this down move. Its practically to the tick, and price can't penetrate.

N - Coming down to N looked like it was a bit quicker in relation to the previous bar, but it retraces up.

P - Price comes this bar, but it can't go higher past the previous swing.

Q - We come to here, and we have a series of lower highs and higher lows, hence I can draw in a hinge. (it looks not as nice on this chart that isn't compressed properly)

But this bar here below Q is another quick drop, so lets wait for the RET.

R - Here is the RET, and we can track the price up, and also trail a sell stop below. Here is what I'm thinking. Price tried to go past the 50% level but couldn't. It tried again at P and couldn't. It tried a third time at Q and couldn't. Sure we can just go sideways for the rest of the day, but without that 50% level being broken and those spikes down, down seems like the LOLR.

S - Coming to the next RET, a tiny one, a 1 tick entry would fill, but stops out on the stop which would be this ledge of bars with the same height.

T - Now if we are trailing another sell order, it fills below this bar. Seeing as I could have just been stopped out on the previous trade... do I try again? If I do, its a great move.

U - Now we have this huge spike down. This is the other thing I need to backtest. These happen often enough, and are visually very easy to spot. So what happens with the RET?

V - Price comes up even halfway on the same down bar at U, but trailing a sell stop gets me in below this bar. Where the stop would be is a bit tricky. I don't have a swing high to use, so perhaps just the height of this bar.

Anyway... the whole point of this is that almost all of these RETs work. Even the one that doesn't at S is just part of the statistical nature of trading. There are some days of course where its just choppy and each RET entry gets stopped out. But perhaps once a trend is established, most RET entries work... and that's all that is necessary... knowing that you have the statistical edge.

 

[k p]

My stats show a win rate of 83-89%. There are a number of reasons for this.

First off, I am VERY selective in the trades I will take. I am a firm believer in trading less. The advantage with this is many folds. The setups I trade will show up only few times a day, so on average I will have 6-15 trades a day (over multiple equities). This may be low, but since I am so confident in my setups, it allows me to put on good size, which makes up for the low number of trades. Trading less also allows you to conserve your energy, keep your emotional level close to "zero" and most of all, it allows you to manage your trades as efficiently as possible.

The other thing is that I will only enter trades which have a MINIMUM of a 1:4 R:R. Anything under this is ignored. Later in the day, when the market slows down a little and levels have been determined, a 1:10 ratio is attainable, but it is not as frequent. Collectively, the average on my ratios is 1:5.7 - 1:6.6. I am allowed these ratios as I get in on a trade in very tight areas with an expectation of a good move.

Trade management is also crucial. On entering a trade, I pay very close attention to the price action for the first few minutes. I want to know that I have entered a trade where the "herd" is all moving in the direction I have chosen. If the trade does not act as I anticipated, I will become very miserly with the movement I will allow. The aim of getting out of a trade that is not working is to get out at B/E. If this is not possible, then taking a small loss is the next best option and taking a loss in this business is very acceptable. It's like paying tax; nobody wants to, but everyone accepts it as a cost of doing business.

In saying this, you have to take note that I mainly trade equities. Hence, the above figures are all based on trading equities. I doubt I could replicate these results trading NQ, CL or ES. I choose to trade equities as it allows me the freedom to move around and look for my setups. I can also have multiple positions playing, which also keeps me nicely diversified. The other advantage is that you do not have the expertise trading collectively in these trades compared to trading in the index futures. The only advantage I see with trading these futures is the liquidity it provides. You can be in and out very easily with very little slippage. As for now, I am not that big in my volume and would only have an issue if I was trying to trade 5-10k shares, which I don't. I mainly trade stocks that range between $50-100 with a daily average volume of over a million.

All in all, each instrument has it's own unique stats and each individual will have and equally unique result depending on their style and temperament. Some people do well in one and others excel in another.

Wow AT.... thanks so much for this. I'm sure that I'm not the only one who will find these stats incredibly interesting.

83%-89% with a win rate of at least 1:4? You must be shitting me!!! (not that I doubt you.. jut making sure I understand this right) 6-15 trades a day is I think an incredible amount of trades to be putting on. I worry about having a system where there might not even be a trade a day, so I'm surprised to read that you find this low.

(as an aside, I know I keep quoting my risk:reward improperly. I kept using reward:risk, hence 3:1, but since the saying always is risk:reward ratio, the way I should be writing it is 1:1, 1:2, 1:3)

The last point about trading equities I was going to comment on earlier in the week as well. Having gone through Lescor's journal, he makes an interesting point since he too just trades equities. His main point was that futures are dominated by expert traders, or something to this affect, so looking for opportunities is harder. I think this makes very much sense, and this is the same reason I have read for why trading the ES is very difficult... its the most traded market and hence offers the least obvious moves. (I had a go at modelling a while back... and when you walk into an audition, you quickly realize how you're the ugliest guy in the room! hahaaha... Likewise, when I finished highschool, I was pretty damn smart, but when I started at a major university, I was quickly humbled and switched majors!)

So care to share what you look for? I remember well the charts you have posted to my journal in the past, so you certainly seem to be a price action trader who looks at context, especially on a higher time frame chart. Perhaps you can comment on your entry methods? And even if this is asking too much, perhaps you can comment on retracement entries and the stops as I've been using? Its interesting that you can get out mostly BE. You do of course note that this is for equities so I'm not looking to replicate these stats with what is possible in the NQ, but since you're a price action trader yourself, any further insights about the entry you could offer would be most welcome!

I really do appreciate these stats... I find them quite interesting! (granted they don't help my trading... but I love "hard" numbers and "hard" facts... something solid in this world of unpredictability and statistical probabilities)

 

[bh_prop]

Can I ask a personal question? I don't know much about your posting history actually. What kind of trader are you? What do you trade? How long have you been at it? Your advice certainly fits well with the road I'm going down, so I'm curious what methods you follow if you don't mind me asking.

I am a former institutional (financial nat gas) trader who made an attempt to trade for a living from home during 2006-2008. My style tends to be mean reversion and scaling in/out. After spectacular success I had a spectacular failure during the equity market crash. Have been back at a day job since late 2008 and the only trading I am doing these days is mean reversion (mostly from the long side) in equity and energy 2-3x etf's in my IRA. Have never posted a journal on ET so do know that I admire your courage and honesty in doing so.

 

[k p]

I am a former institutional (financial nat gas) trader who made an attempt to trade for a living from home during 2006-2008. My style tends to be mean reversion and scaling in/out. After spectacular success I had a spectacular failure during the equity market crash. Have been back at a day job since late 2008 and the only trading I am doing these days is mean reversion (mostly from the long side) in equity and energy 2-3x etf's in my IRA. Have never posted a journal on ET so do know that I admire your courage and honesty in doing so.

Thanks for this bh! Interesting that you favor the long side, and I guess its no wonder therefore that you had troubles during the equity market crash.

I too have a real job... so although I do want to make trading my main source of income, my livelihood at the moment isn't dependent on it, just all my hopes and dreams and future are riding on it! Trading as a source of income until one is consistently profitable would be incredibly difficult, so I consider myself very fortunate to be able to be here live in the morning and learn, and yet not have the stress of having to make money from this at the moment.

I don't find it too difficult to post honestly actually. People don't know who I am, and so the hardest part is exiting the stupid trades for a loss or not taking them and watching a good move pass me by. To write about it after the fact is almost therapeutic because at least some good may come out of it for someone else. But I do appreciate you telling me that you admire the honesty in the journal. I have no intention to stop until I'm either consistent, or broke, or get hit by a bus on my way to work. LOL Whatever I'm lacking in terms of intelligence, skill or rule following at the moment is being well countered by determination. (and the good help offered here at ET!)

 

[Alpha Trader]

83%-89% with a win rate of at least 1:4? You must be shitting me!!!

These numbers may be decent, but if I were to compare it with some really good traders, they wouldn't stand out as much. Also, when I dig up stats, it is not for anything more than a numerical gauge to indicate my standings and to improve upon it.

6-15 trades a day is I think an incredible amount of trades to be putting on.

Once again, I trade equities. It's not very hard finding your trades over hundreds of charts as compared to only one.

I worry about having a system where there might not even be a trade a day

And that is perfectly ok. You wait and wait and wait and wait...............................until your setup arrives. When it does, comfortably pile on the volume. You can make more money in one trade that comes as second nature to you (by putting on volume), than trading multiple setups where you make some and lose some.

You don't want to open shop when there's a riot going on out on the streets, do you? You may get a small amount of legit business done, but the rest will be looting you! This analogy is reflective of waiting till all has settled and you are in control to enter a trade.

(as an aside, I know I keep quoting my risk:reward improperly. I kept using reward:risk, hence 3:1, but since the saying always is risk:reward ratio, the way I should be writing it is 1:1, 1:2, 1:3)

It's a common "mistake" which everyone uses anyway (including myself sometimes). No big deal as the message is conveyed clearly as to what it means.

The last point about trading equities I was going to comment on earlier in the week as well. Having gone through Lescor's journal, he makes an interesting point since he too just trades equities. His main point was that futures are dominated by expert traders, or something to this affect, so looking for opportunities is harder.

That is exactly what I was saying when I said:

The other advantage is that you do not have the expertise trading collectively in these trades compared to trading in the index futures.

Perhaps you can comment on your entry methods? And even if this is asking too much, perhaps you can comment on retracement entries and the stops as I've been using?

My method is pretty simple for a retrace entry. It's actually very similar to what @NoDoji is trying to show you, what many other traders are doing successfully and what you are trying to do.

A little boy sees daddy riding his bike hands-free and gets pretty amused. He tries and tries, but keeps on failing. However, with time he can do just that little better and by the time he realizes it, he is hands-free too.

You too have been improving in the same way and I have confidence in the fact that you will make it sooner or later. At that point I will ask you to explain your retrace entry method to an aspiring trader and just as you are struggling with it right now, you may notice the repeat of it from him/her and it will be clear to you at that point that one has to make it his/her own to be able to do it.

@NoDoji has given it to you, but you are still struggling; so me explaining the same (or similar) to you will not make much of a difference. All I can say is that you are slowly seeing the light and that if you follow this path, your probability of getting to your destination is good. Keep on prodding and you will break through.

Its interesting that you can get out mostly BE.

Some days I can do no wrong and I get those B/E for the most part. Some days it's the opposite and I have to take the loses. Either way, it doesn't matter much as the losses are small (this is a nice little "secret" to hold close to your heart) and my ratios allow me to finish the day in good standing

something solid in this world of unpredictability

Actually, your research of late opposes the above statement. The work you have been doing is slowly getting rid of the unpredictability and leading you to a path that is more certain. With that, you will have more confidence and will eventually be riding hands-free

 

[k p]

My method is pretty simple for a retrace entry. It's actually very similar to what @NoDoji is trying to show you, what many other traders are doing successfully and what you are trying to do.

A little boy sees daddy riding his bike hands-free and gets pretty amused. He tries and tries, but keeps on failing. However, with time he can do just that little better and by the time he realizes it, he is hands-free too.

You too have been improving in the same way and I have confidence in the fact that you will make it sooner or later. At that point I will ask you to explain your retrace entry method to an aspiring trader and just as you are struggling with it right now, you may notice the repeat of it from him/her and it will be clear to you at that point that one has to make it his/her own to be able to do it.

@NoDoji has given it to you, but you are still struggling; so me explaining the same (or similar) to you will not make much of a difference. All I can say is that you are slowly seeing the light and that if you follow this path, your probability of getting to your destination is good. Keep on prodding and you will break through.

Some days I can do no wrong and I get those B/E for the most part. Some days it's the opposite and I have to take the loses. Either way, it doesn't matter much as the losses are small (this is a nice little "secret" to hold close to your heart) and my ratios allow me to finish the day in good standing

Lovely analogy AT... and I do love analogies!

If I may press an issue though... can you give details about the RET entry? It is incredibly simple on the surface, so I wonder if you can help it grow for me. There is the issue of the entry, anywhere from one tick above/below the RET to one point. This is the easy bit.

What about the issue of the stop. Is the most recent swing high/low with the stop one tick above or below or some other value the most appropriate? I do of course understand that different rules for different instruments and it all comes down to backtesting. So I guess what I'm asking is if there is fundamentally something that I'm still missing. The one tick entry/exit can stop you out of a good move, and so re-entry seems crucial sometimes, hence why widening this to 1 stop might be the sweet spot. (ND's 1 tick rule may very well be based more on CL which I believe she trades more than the NQ anyway) But aside from the actual values, is there some deeper meaning to the RET or something more to see?

I have confidence that I will make it sooner or later as well, but I'd like it to be sooner naturally. So when you encourage me to keep on prodding and that I will breakthrough... can you shine the light onto the path so that I can see how to get there? With the RET being so simple on the surface, I wouldn't mind something more in depth that I perhaps could still be missing.

In closing, I just cannot see how a win rate of over 80% with at least a 1:4 profit ratio and with most "losing" trades being closed at BE is in any way not almost at the top! Incredible... just incredible AT!

PS. May I also ask about your history? Since you only signed up in April of this year and yet have years of experience, I'm curious about your path. If you only have time for one more answer though... definitely further discussion about the retracement would be my one question.

 

[Alpha Trader]

so I wonder if you can help it grow for me.

@@NoDoji has given it to you, but you are still struggling; so me explaining the same (or similar) to you will not make much of a difference. All I can say is that you are slowly seeing the light and that if you follow this path, your probability of getting to your destination is good. Keep on prodding and you will break through.

At that point I will ask you to explain your retrace entry method to an aspiring trader and just as you are struggling with it right now, you may notice the repeat of it from him/her and it will be clear to you at that point that one has to make it his/her own to be able to do it.

What about the issue of the stop. Is the most recent swing high/low with the stop one tick above or below or some other value the most appropriate?

I know that this is your million dollar question. However, there are a 1000 ways to skin a cat and this is just but one.

Generally, this (retrace) is an "easy" starter method, but you seem to be struggling on it a little. I have not looked at this journal in too much detail of late, but from what I schemed through, it kind of portrayed where your trades become a little strained. The first is your overbearance on the 1-min chart. Try finding your setups and retrace entries on a 5 minute chart and ONLY use the 1-min chart for controlled entry. As of now, you are applying too much of the retrace sampling on the 1-minute time frame.

The second thing you have to understand is that the NQ chart is more volatile than other instruments. Your "1-tick" implementation not only stretches out your stops, but also gives you the low R:R that you have been researching. I believe that most traders trading the NQ have very good experience trading it and can read the price action really well. Since, they have this on their side, most of their entries must be coming on touches of various TL and S/R lines as the move becomes extended and is ready to revert back to mean. This not only gives them tight stops, but also very good R:R ratios.

If this is the instrument you will be trading, then you will have to intently study each chart on different time frames and with time it should all come together.

So I guess what I'm asking is if there is fundamentally something that I'm still missing.

Screen time

The one tick entry/exit can stop you out of a good move, and so re-entry seems crucial sometimes, hence why widening this to 1 stop might be the sweet spot.

Once again, may this be due to the over-reliance on the 1-min time frame?

is there some deeper meaning to the RET or something more to see?

Yes there is much more to see. For now you are only seeing hinges and retraces. Studying more charts with added screen time will allow you to see more. Slowly expand what you search for in charts. That is what will make the CONTEXT clearer for you and that is a biggie! Observe EVERYTHING!

I'd like it to be sooner naturally.

Wouldn't we all

"The fruit ripens slowly, but falls suddenly"

- Unknown

PS. May I also ask about your history? Since you only signed up in April of this year and yet have years of experience, I'm curious about your path.

http://www.elitetrader.com/et/index.php?threads/the-best-traders-in-et.277349/page-63

*Note that I had a different handle then. The amount of work I was putting in kept me away from ET and in the meantime my outside accounts got breached. Unfortunately, they shared the same passwords and so I was forced to create a new handle when I came back.

On a personal note, I am a solo trader trading from home via a prop. Sunny Florida is where I call home for the time being.

 

[k p]

Generally, this (retrace) is an "easy" starter method, but you seem to be struggling on it a little. I have not looked at this journal in too much detail of late, but from what I schemed through, it kind of portrayed where your trades become a little strained. The first is your overbearance on the 1-min chart. Try finding your setups and retrace entries on a 5 minute chart and ONLY use the 1-min chart for controlled entry. As of now, you are applying too much of the retrace sampling on the 1-minute time frame.

You aren't the first to point this out. I do have a 5 minute chart up on the second screen and do very much refer to it, but its true that I have not studied it in nearly enough detail.

Since, they have this on their side, most of their entries must be coming on touches of various TL and S/R lines as the move becomes extended and is ready to revert back to mean. This not only gives them tight stops, but also very good R:R ratios.

This is trading at the extremes as Db would say (funnily enough, he just said it in his thread as a reply to me just now!). Him pointing out the channel today is a perfectly timed example, and a month ago I had a member point out to me a possible support line (weekly DL) that miraculously stopped and reversed the huge drop that happened at the end of October. The way you say it though, that their entries must be coming from various trend lines and S/R lines somehow hits me in a slightly different way, as in what you're saying is the same thing I've heard before, but its just a bit clearer. Maybe I'm just that much better able now to receive this information.

For now you are only seeing hinges and retraces.

As a tease... throw out in one word/one phrase answers what else I need to see. Its easier to find something in a chart when I know what I'm looking for!

Note that I had a different handle then. The amount of work I was putting in kept me away from ET and in the meantime my outside accounts got breached. Unfortunately, they shared the same passwords and so I was forced to create a new handle when I came back.

Wow.. thanks for digging this up. What a great summary. This of course leads me to ask now what your previous handle was so that I could search you up... but I fully understand if you want to keep this private. And so now of course I have to ask what this "bait" was that ND told you.

And once again, your stats of 9 months, 16 hours days, 6 days a week is a wonderful stat! I have been at this since I started my journal in February, so I too am at the 9 month mark. Not nearly putting in 16 hours days, but perhaps why people are helping me so much is because they can see through my journal entries that I do keep plugging away, so I am showing a certain amount of work ethic.

On a personal note, I am a solo trader trading from home via a prop. Sunny Florida is where I call home for the time being.

I'm on the west coast in Canada... very rainy up here! But I would love to spend 6 months every year in LA. There is just something so magical about that place for me, and much of this must have to do with the equally sunny weather as Florida.