Trading NQ via Price Action

[k p]

Oh.. I didn't mean to imply that I was asking you to answer it directly, but given that we are looking for rejections on a 5 min or hourly chart, I'm trying to figure out what that rejection can look like. Sometimes price stops just before the level, like the short on Friday just below 4204 at roughly 1430 hrs. So as price is dropping, we didn't even hit the level. 40D's friend took the short at roughly 5 points below the ultimate high, and about 6 points below where the level was that we were watching. A short this far away from the level I consider dangerous because what would constitute a reason to exit? If price should happen to climb back up to 4202 again, or even try for 4204, does this mean the short is no good? Absolutely not because this could just be the retest. So do you hold the short through a 6 point loss waiting to see if it goes above 4204? Do you exit real quick if it doesn't drop right away, but perhaps be ready to re-enter again?

I absolutely understand the importance of trading at these extreme levels, but the trick is figuring out what it means for you to be able to say with some confidence that traders have rejected this price level and are heading lower, or if this is just another RET in an otherwise uptrending market.

Yes, so I guess I am trying to find out if this level will hold. In terms of time frame, I can see how the 5 min chart prevents you from micro-trading and is a great chart to look at for levels, the hourly chart even more so. But I of course also follow the 1 min chart, and I have been looking at the 5 sec chart to see if anything in there makes sense for me to make an entry that is both indicative of the direction and also very close to the watched level so that my entry isn't so far away. We can never be sure that price will drop right away, but we can also never be sure that it will go above that high we are watching. So getting in as close to that level as possible seems key.

With 40D outlining that his friend took the short at this red arrow here, but is only watching the 5 min chart, then he is clearly watching the behavior of the right tick to let him know to short here. (Contrast this with how many other traders would trade which would be an entry above or below a bar) So the question keeps coming back to the behavior contained within that bar, how those ticks move, that lets a trader know the level has been rejected or not.

 

[MarketAddict]

Oh.. I didn't mean to imply that I was asking you to answer it directly, but given that we are looking for rejections on a 5 min or hourly chart, I'm trying to figure out what that rejection can look like. Sometimes price stops just before the level, like the short on Friday just below 4204 at roughly 1430 hrs. So as price is dropping, we didn't even hit the level. 40D's friend took the short at roughly 5 points below the ultimate high, and about 6 points below where the level was that we were watching. A short this far away from the level I consider dangerous because what would constitute a reason to exit? If price should happen to climb back up to 4202 again, or even try for 4204, does this mean the short is no good? Absolutely not because this could just be the retest. So do you hold the short through a 6 point loss waiting to see if it goes above 4204? Do you exit real quick if it doesn't drop right away, but perhaps be ready to re-enter again?

I absolutely understand the importance of trading at these extreme levels, but the trick is figuring out what it means for you to be able to say with some confidence that traders have rejected this price level and are heading lower, or if this is just another RET in an otherwise uptrending market.

Yes, so I guess I am trying to find out if this level will hold. In terms of time frame, I can see how the 5 min chart prevents you from micro-trading and is a great chart to look at for levels, the hourly chart even more so. But I of course also follow the 1 min chart, and I have been looking at the 5 sec chart to see if anything in there makes sense for me to make an entry that is both indicative of the direction and also very close to the watched level so that my entry isn't so far away. We can never be sure that price will drop right away, but we can also never be sure that it will go above that high we are watching. So getting in as close to that level as possible seems key.

With 40D outlining that his friend took the short at this red arrow here, but is only watching the 5 min chart, then he is clearly watching the behavior of the right tick to let him know to short here. (Contrast this with how many other traders would trade which would be an entry above or below a bar) So the question keeps coming back to the behavior contained within that bar, how those ticks move, that lets a trader know the level has been rejected or not.

Trading extremes is just one way of looking at the market.. The market usually never look the same everyday.. So you have to study all market behaviors.. Trading extremes will work today but what about tomorrow? Do you know how to trade if the market isn't making extremes? Trading extremes can be tricky sometimes.. I gave up on trading them long time.. If I do trade them, I rather wait for it to breakout and then wait for a retest.. But sometimes it doesn't retest so I know exactly what you are talking about.. It looks like 40D friend waited for the price to breakout the second (middle) extreme and then shorted when price came back into the high...

 

[fourtiwinks]

Perhaps you can help me out here fourtiwinks because I need another set of eyes as my observation skills are completely useless...

Perhaps I will fail at this because I cannot separate the observation phase from looking for entries...

Sorry k p,

I saw your request late and could not respond until now. Fortunately, fortydraws and MarketAddict had already provided useful guidance and insights.

I'm flattered that you had requested my help (even more flattered when Db and others had thanked my earlier post!). But seriously, I am way behind the curve than you, bro. I have spent more than seven fruitless years in trading, jumping from system to system, and from options to forex to futures... with only silly losses, stubbornness and a wrong mindset to show for my vain efforts. Even my own brother is telling me to quit trading! Most certainly, my observations (lack of them actually) are far below yours. Thus the rest of this post is not about price action or charts (sorry!)

I reveal my problems not because I need sympathy, but to remind you not to assume that everybody knows better than you. Of course by "everybody", I certainly don't mean Db, NoDoji, fortydraws, MarketAddict, etc.. but I'm sure you get the drift.

More importantly, one possible reason why you are struggling is that you have lost faith/belief in yourself. Once you do that to yourself, it is very hard for others to help you... simply because you'll always have doubts in your mind. It may not be what they suggest, but in your own capabilities.

Look at your own words in the above quote:
"...I need another set of eyes as my observation skills are completely useless..."

Do you realise how damaging those words are to your own psychology/self-belief?

Would you ask such a favour from your passenger while you are driving? And how would you react if your driver ask that of you?

I know my analogies are way off the mark, but I hope you see the seriousness of it.

Look at another phrase: "Perhaps I will fail at this because I cannot..."

Actually, you have already failed when you say that. It is not about being negative, but about self-defeatism.

Don't lose your self-belief, bro. You have failed thus far, but it doesn't mean that you will fail all the time. Sure, maybe you'll fail again tomorrow, next week, next month.. but who knows, maybe you'll get it right in another month, end of this year, or even next year. Even if you failed at Db's method, maybe you'll succeed at other ways of trading. Just don't say self-defeating words/phrases to yourself because they can be even more damaging than you realise.

I'm struggling with this too, actually, but I try to keep such things in check and tell myself that I mustn't lose my self-belief.

Sorry that my post is rather long, but I felt I need to share my thoughts with you after reading your comments in the quote.

Take good care bro, especially your self-belief, and may it be your best ally in trading.

 

[AdrianHagh81]

Dear KP,

I think you are going about this in a totally wrong way.
Listening to gurus and other discretionary traders drawing imaginary lines on an index
futures won't get you anywhere.
index futures move when the underlying move.
Then theres also the momentum ignition algos doing the USD/JPY carry.
Index futures are one of the most challenging products to trade especially intraday.

But if you want to make it simple, i guess its possible, but your Profit factor
and the correlation coef of your equity curve won't be pretty.

Here's an extremely simple strategy in easylanguage code, just paste it into trade station and pray and observe.
You won't lose money on this, however theres a less then 30% change you'll make money either.

Inputs: NL1 (45),
MMStopSzL (225.00),
NBarExL (280),
EntFrS (0.5021),
PSParam (1.00),
RoundPS (true),
RoundTo (1),
MinSize (1),
SizeLimit (100);


Var:
LStop (0);

Var: VarL1 (0),
EntCondL (false),
EndofSess (false);


Var: NShares (0);


VarL1 = Time;
EntCondL = VarL1 < NL1;

EndofSess = false;
If DataCompression >= 1 and DataCompression <= 4 then
EndofSess = (Time = SessionEndTime(0, 1));

NShares = PSParam;

If RoundPS and RoundTo > 0 then
NShares = IntPortion(NShares/RoundTo) * RoundTo;

NShares = MaxList(NShares, MinSize);
NShares = MinList(NShares, SizeLimit);

If (MarketPosition = 0 or EndofSess) and (EntriesToday(Date) < 3 or EndofSess) and EntCondL then begin
Buy("EnMark-L") NShares shares next bar at market;
end;


If MarketPosition = 1 and EndofSess = false then begin
If BarsSinceEntry = 0 then begin
LStop = EntryPrice - MMStopSzL/BigPointValue;
end;

If BarsSinceEntry >= NBarExL then
Sell("ExNBars-L") next bar at market;

Sell("ExStop-L") next bar at LStop stop;
end;


SetExitOnClose;

Heres the backtest

 

[k p]

Thanks for the reply fortiwinks.

To be honest, I do think I'm a pretty smart guy. So when I read posts that make this look so easy, I have to question if I'm stupid, or if I just don't have what it takes to see, or if what people are claiming is easy to see really isn't, or its not in the way they say it is.

Here is a great analogy. Now I'm not religious, and I don't intend to insult anyone with this example here, but religious people have all these wild claims about how god talks to them and so on and so forth. Now because I am a strong atheist (didn't start out that way because my parents were very religious as we came from a communist country so they needed to believe something), I know that whatever claims they make are false. Religious people might believe that someone is guiding them, but when you ask for proof, about the only possible answer that makes any sense is faith. Examples and personal accounts never stop, but none of this is proof. Faith doesn't prove anything, but at least its an explanation I can accept. Like hope. Hope is great in life, but useless in trading.

So you see, when I'm told to observe, and I ask for help with what I should see, and the only response is that I will see it once I observe enough, I cannot help but wonder if I'm just being told to pray and wait for god to show me the way!

I need proof, I want to see what this behavior is, something tangible to point to whether its on a 5 sec chart, a tick chart, a video clip that shows how the right tick moves. I'm a science man, and these things should be testable and repeatable. Of course a consistent profit beyond statistical luck is great proof that someone knows something, but nothing that anyone is showing is consistent. (I know that with Db's SLA method, this is at least something I can test. The trouble I had was drawing the lines in real time, and that the market has to be trending well. Sure you can introduce some filters about the environment that you should be trading in, but once you do this, its no longer an autopilot method and then your analysis of market conditions has to be backtested, etc.)

This is why I made the point about 40D only showing the best trades, once or twice a week. There is no consistency here. (I am not once again claiming he's not telling the truth, I'm just saying its incomplete.) This works beautifully when price approaches a level, hits with pin point accurately, drops, retests, hesitates, and drops some more. But when price just congests around this level... what then?

I am also being very careful to point out that I'm not looking for every trade to work, I know that this is a just a statistical game. But why doesn't anyone show the scratches? The 3 point losses? The re-entries? The failed re-entries? Given what is shown, I'm led to believe that there are two good trades each day and my job is to hunt them down, and if I didn't take that best trade then it means my observation is lacking and that my trading plan is lacking.

I made this chart below today (the notes should be read as you follow price from left to right). It might sound like I'm bitter because I lost money, but I did not trade. I just watched price. Its easy to say now when I look at a 5 min chart that price broke above the 4208 level but didn't continue and couldn't hold this level and so sure, a short just below this level would have been an amazing trade now given that price is at 4172 as I type this.

But when you look at everything that happened around this level and slightly lower down, I'm not sure if there is enough there to make it so clear. And if anyone did short at 4208 and is still holding, then about the only thing they would have been looking at is if price retraced 50% of the down move, which it did at one point, just breaking slightly above the 50% level before stopping at the OH.

But this would make all the other analysis useless. If anything, we had a good move up from the open, and the 1 minute swing low at 0937 represented the 50% level of that up move, and price maintained above this level. So when price came down and dropped below this 50% level at 10:02, the longs could say they were in trouble, but hello, that short started at 4208. If I shorted anywhere below the exit from the hinge, you would have been chopped up.

Anyway... thanks for sharing your story and I'm sorry that you're still struggling after all these years. I wish I could help, but clearly I cannot at this point. My intention with this journal was always to be completely transparent with everything I do, record every gain and every loss, every trade, not just the best trades, but so far, all I have is a consistent losing streak. Perhaps everyone can just take the opposite trades of the ones I make like Ghost of Blotto once suggested!

 

[k p]

Dear KP,

I think you are going about this in a totally wrong way.
Listening to gurus and other discretionary traders drawing imaginary lines on an index
futures won't get you anywhere.
index futures move when the underlying move.
Then theres also the momentum ignition algos doing the USD/JPY carry.
Index futures are one of the most challenging products to trade especially intraday.

But if you want to make it simple, i guess its possible, but your Profit factor
and the correlation coef of your equity curve won't be pretty.

Here's an extremely simple strategy in easylanguage code, just paste it into trade station and pray and observe.
You won't lose money on this, however theres a less then 30% change you'll make money either.




Heres the backtest

Hi Adrian... thanks for your post. Oh my... that is quite the suggestion. I do believe that a statistical analysis and trading plan based on this is more than possible, but it is way beyond my means. I know nothing about programming. Also, that drawdown chart looks scary. I've managed to make my account look the same way mind you all by myself!

You know, I bet that if I went through all my trades but just made sure to keep the winners going for at least 10 points, and cut the losers off at a 5 point loss, I would more than likely be at break even or better. The simple fact that the more I do, the worse results I have just doesn't escape me. (the other issues of course is cutting off profits and letting losers run)

But I do believe that there really is something to these levels. I can see that much with my own eyes. I just don't know where and how to get in and out, and I also haven't been able to demonstrate the ability to hold a winning trade. Putting a trade on and then walking away would be best, almost auto trading in a way with my manual trade inputs, but I'm definitely a bit behind now and need to regroup before I figure out how to move forward.

 

[AdrianHagh81]

Hi Adrian... thanks for your post. Oh my... that is quite the suggestion. I do believe that a statistical analysis and trading plan based on this is more than possible, but it is way beyond my means. I know nothing about programming. Also, that drawdown chart looks scary. I've managed to make my account look the same way mind you all by myself!

You know, I bet that if I went through all my trades but just made sure to keep the winners going for at least 10 points, and cut the losers off at a 5 point loss, I would more than likely be at break even or better. The simple fact that the more I do, the worse results I have just doesn't escape me. (the other issues of course is cutting off profits and letting losers run)

But I do believe that there really is something to these levels. I can see that much with my own eyes. I just don't know where and how to get in and out, and I also haven't been able to demonstrate the ability to hold a winning trade. Putting a trade on and then walking away would be best, almost auto trading in a way with my manual trade inputs, but I'm definitely a bit behind now and need to regroup before I figure out how to move forward.

Almost all of the successful discretionary traders I know have years of floor experience.
They just have an innate ability to feel price and read the tape.

Your brain is a pattern recognition machine, however it can and it will see patterns
when there isn't any. Like seeing a ship on the clouds above or a face on Mars.

Without statistical testing and rigorous discipline theres no way for you to discern
what is real and exploitable and what is just imaginary confirmation bias.

on the NQ, do you know how much weight percentage is apple ?

Do you know about the relationship of the ask/bids NQ with the top 5 stocks NBBO ?

 

[k p]

Almost all of the successful discretionary traders I know have years of floor experience.
They just have an innate ability to feel price and read the tape.

Your brain is a pattern recognition machine, however it can and it will see patterns
when there isn't any. Like seeing a ship on the clouds above or a face on Mars.

Without statistical testing and rigorous discipline theres no way for you to discern
what is real and exploitable and what is just imaginary confirmation bias.

on the NQ, do you know how much weight percentage is apple ?

Do you know about the relationship of the ask/bids NQ with the top 5 stocks NBBO ?

Nope... I don't know the answer to your questions. But when you say you know the guys who can feel price and read tape, this is exactly the road I'm trying to go down.

There really is this truth and elegance to watching what price has done in the past and where it has done it, and then seeing what traders to with it once price gets here again. Traders are no different than people buying stuff, and hence why Db calls this all an auction market. My ability to read this is lacking, and worse is my ability as to what I'm going to do about it.

You hit the nail on the head when you bring up statistical testing and rigorous discipline. Patterns are much easier to test, but I don't believe have a better win ratio because they fail to take into account the context and even more so, behavior. A pattern has to look perfect, the behavior has some wiggle room I believe and if you're in tune with reading this, you're set. It is after all the behavior that sets up the pattern. If I was to do this all mathematically, I might as well be a hedge fund or quant, which is even way further beyond my means than reading behavior!

In terms of the bid/ask, I don't know enough about this. For every transaction there is a buyer and seller, and although it somewhat makes sense to me that if everything that is offered keeps getting bought at the offer and hence it goes higher, seeing that price is going higher will be good enough anyway. So watching the last transaction price I do believe is good enough.

When you bring up the broader market, there is the TICKQ, and I have been playing around with plotting that. What moves the NQ is of course what all those stocks are doing, so it makes sense to watch this, but I found it information overload, and in no way helpful to me at the moment. Its like driving. Its helpful to read the signs that tell you where to go if you're trying to drive across the country, but if you're just learning to drive, its hard enough just staying in your lane and trying to keep up with the traffic without hitting anything... who cares if you miss your off ramp as long as you don't hit someone!

 

[AdrianHagh81]

Nope... I don't know the answer to your questions. But when you say you know the guys who can feel price and read tape, this is exactly the road I'm trying to go down.

There really is this truth and elegance to watching what price has done in the past and where it has done it, and then seeing what traders to with it once price gets here again. Traders are no different than people buying stuff, and hence why Db calls this all an auction market. My ability to read this is lacking, and worse is my ability as to what I'm going to do about it.

You hit the nail on the head when you bring up statistical testing and rigorous discipline. Patterns are much easier to test, but I don't believe have a better win ratio because they fail to take into account the context and even more so, behavior. A pattern has to look perfect, the behavior has some wiggle room I believe and if you're in tune with reading this, you're set. It is after all the behavior that sets up the pattern. If I was to do this all mathematically, I might as well be a hedge fund or quant, which is even way further beyond my means than reading behavior!

In terms of the bid/ask, I don't know enough about this. For every transaction there is a buyer and seller, and although it somewhat makes sense to me that if everything that is offered keeps getting bought at the offer and hence it goes higher, seeing that price is going higher will be good enough anyway. So watching the last transaction price I do believe is good enough.

When you bring up the broader market, there is the TICKQ, and I have been playing around with plotting that. What moves the NQ is of course what all those stocks are doing, so it makes sense to watch this, but I found it information overload, and in no way helpful to me at the moment. Its like driving. Its helpful to read the signs that tell you where to go if you're trying to drive across the country, but if you're just learning to drive, its hard enough just staying in your lane and trying to keep up with the traffic without hitting anything... who cares if you miss your off ramp as long as you don't hit someone!

KP, you've been at this for a year.

And throughout this whole time you and your poster friends keep talking about
more and more abstract non quantifiable ideas. And even blaming
psychology and trying to find the "trading zone" state of mind.

Don't you think there's a small chance that all this approach to discretionary trading
just plain doesn't work ?
Believing in something doesn't make it real.

And having said that, index futures are the most difficult instrument to day trade.
You'll be surprised of what the proffesional traders @ prop firms and funds
average point per contract per year on the ES and thats with heavy martingaling
and using external non price/volume data.

 

[fourtiwinks]

Thanks for the reply fortiwinks...
...My intention with this journal was always to be completely transparent with everything I do, record every gain and every loss, every trade, not just the best trades, but so far, all I have is a consistent losing streak. Perhaps everyone can just take the opposite trades of the ones I make like Ghost of Blotto once suggested!

No worries k p, I'll be most glad if I had barked up the wrong tree. It was just that those words/phrases in your earlier post struck a cord in me and made me respond in that way. Guess I was a little thick in failing to see the humour behind them.

...I need proof, I want to see what this behavior is, something tangible to point to whether its on a 5 sec chart, a tick chart, a video clip that shows how the right tick moves...

I guess the proof has to come from yourself, as what you want to see as proof may not be what Db or others want to see as proof. Hence, when they provide their proofs or suggestions, the information just do not gel with you.

...The trouble I had was drawing the lines in real time, and that the market has to be trending well...

Interestingly, you have defined the problem so you have to formulate an answer to it, given the concepts that Db has advocated. If you cannot prove it, then SLA simply doesn't work for you. Let's try something else then.

...So you see, when I'm told to observe, and I ask for help with what I should see, and the only response is that I will see it once I observe enough, I cannot help but wonder if I'm just being told to pray and wait for god to show me the way!...

I believe fortydraws has provided his specific way of observing:

1) Put up a five minute chart of what ever market you intend to trade, and watch it for two months from 9 AM EST to 11:30 AM EST.
2) Unless you are absolutely not meant to understand price and how it behaves, you will learn. Just watch. Don't even draw lines for the first week.
3) Don't think buyers/sellers/long/short. Just watch.
4) After the first week, you should be able to start identifying levels where price reversed and watch what price does if and when it comes back. I do not mean every little retracement as price moves 20 points. I mean watch price when it goes down, stops going down, and then makes a steady climb until it can climb no more.
5) Do not think in terms of long or short, don't think buyers and sellers - think supply & demand.
6) Maybe in week three you can start tracking the midpoint of swings. But this should all be without thinking "let me see, if I go short at X my stop loss would be X-Y, and I'd be a bazillionaire!"
7) Just look at what I posted in my journal and note specifically how I characterized the price action as I was observing it.

It is very helpful to me as I couldn't follow Db's postings, to be honest. Somehow, most of his comments and charts in his thread are cryptic to me. So fortydraws' suggested steps made me realise that I should focus on "supply and demand". And I believe he is posting charts to help us better observe in that aspect, not because he wants to post the best trades only.

Who knows who is really buying or selling, right? It could be just GS and other banks' algos happily trading off each other. But the aggregate results of their actions (and others) provide areas to observe and act upon, and I believe SLA/AMT is used to identify those areas.

Anyway I have digressed and don't wish to clutter your journal. I will read your chart and comments after this post. All the best and may you find your proof soon!