Trading NQ via Price Action

[fourtiwinks]

I find this correlation between the NQ and ES quite interesting, so I'm actually doing my best to show it here. I tried to line up my charts exactly so that the times match up vertically. You see that as the NQ SLA trade triggers, price on the ES just printed a higher low and is going sideways.

I've never watched the ES before, just today I did, but I might have to make a little window for it somewhere across my two screens.

Hi k p,

I posted your reply here as I think it is more appropriate.

I think you have made an interesting observation about ES as a filter, and I hope you can continue to post more of this in your journal.

I too noticed that Db did not mentioned ES in his SLA-AMT booklet, but he did it when posting live comments.

Actually, I am not bothered by it as I believe the gist of the booklet is to observe trader behaviour in the market that you are trading in, and trade it to your advantage. More importantly, I find looking at two markets tiring.

Still, what you have observed is interesting and may prove to be a useful filter for yourself, and others.

So I certainly hope you can post more in future. Best to your observations!

 

[k p]

Hey fortiwinks... thanks for your post.

I've actually made so many observations that I could run circles around 40D's thread! LOL

Today would have been a very good day for me had I been trading, but alas, not ready yet. But since you asked, let me mark a few things up on a chart. I use the 5 min to show you how I started, and then the 5 sec to really get down to it.

So first let me explain the 5 min chart.

A - Clearly the overnight low

B - Overnight high... but I've taken to marking these after midnight, so although the ultimate high is a bit higher, this is what I had on my chart going forward.

C - Previous day high PDH

D - Support level. Now this is where it gets interesting. If you actually mark a swing low just above the one that forms an ultimate swing low, you often see price come down to this, and not the ultimate low. RN showed this exact same thing in 40D's journal just yesterday.. so I find it ironic given the timing. You see, the way I look at it is that price makes a low and bounces off at what I call the support which is where I draw the line. When it makes another low, breaking the so called support level, which forms a lower low, but price comes back up, its almost like an oversold condition. There wasn't enough selling interest below the support level. What especially makes this line really good is look at the touches after the fact, both before the open, and even after... so this is a good line.

E - Likewise, here is a resistance line I'm gonna watch. It might be just ticks below the overnight high.. .but when i start to see these lines bunching up, multiple levels of resistance from multiple time frames, this is gonna mean something. Here as well, price bounced off a second time just before the open, so this means more.

Now let switch to the 5 sec... (I know lots of traders are rolling their eyes at me here now)

F - Stops 1 tick short of that support level.. what to do? The basis of my testing going forward is this. I can either wait for confirmation to enter, and get a trade 2 points higher perhaps, or I can take a REV trade, thinking this might be support again, but have nothing to go on. Here, if I waiting for this level to be hit, I don't get filled. Perhaps 2 ticks within a level is good enough. It only goes up 6 ticks before going down.

G - Now we hit the overnight low, to the tick, and reverse. Once again, I could wait to go long after some confirmation, but now I'm getting a worse price. Now here is the thing. Had i gone long at 36, with a 2 point stop, I'm still not stopped out on hitting this overnight low, and it obvious a few bars after here, that we are heading higher. Now I'm not saying 2 points is the sweet spot, this will take testing, but what I am saying is this in the next paragraph.

You see, a new trader wants to make sure he doesn't lose money.. the best way to accomplish this is by getting in at the razor edge extreme. If you're stopped out of a 2 point trade that you took right at an extreme point, chances are much better that you will be into profit for at least a few points.

A little bit of confirmation, like maybe waiting 2 bars... hence 10 seconds, often does actually help the win rate, as I will point out later.

H - Here we go a little past that R I was watching, but stop essentially at the overnight high. We only bounce off 6 ticks and go higher.

I - We start having trouble going higher here. We don't make it to the PDH, and we don't even go more than 2 points above the OH. So once again, if we went short at the overnight high and set a stop of 2 points... maybe we're still in, but I find that 3 points is usually better sometimes... I keep going back and forth.

By the time we see that price drops below the OH, we can start thinking ok, maybe this REJ is good, but if you're doing more than observing and actually looking for a trade, you see that your price to enter now is way way worse.

I realize that Db pushes to first understand what price is doing.. and I agree, but at some point, when you have to move to the next step of looking for a trade, when you can say that yes, I see price is now up, the trend is up, you're so far away from where the trend changed, so in some respects, observation and trading are somewhat at odds with eachother. The best trader will not have observed the trend yet... there is no new trend.. there is just potential. The best trades are entered at potential if you ask me, unless you want really wide stops.

J - Interesting how here that resistance level might be proving to be R again, but I'm careful to not get sucked into micro trading. But you know... playing the odds, its not a bad place to place a trade, and if you're wrong, a tight stop fixes that. This trading game is all about taking a risk, and getting the hell out right away if it doesn't go your way.

K,L,M - Surprise surprise, that damn support level is holding. Once again... do we just go long right at support? Do you wait 2 bars to see? Doesn't matter, a 2 point stop would never be hit, even if entered a few ticks above this level.

N - That R level strikes again... what should we do? By the time its obvious, trade is gone, unless you enter right at the level... best price, zero confirmation, just playing the stats of this game. Usually you are right for at least a couple of points.

P - Hit the S level... dips a couple of tick just like before, goes up a few ticks but comes back down. Keep in mind that the move up and back down takes actually 40 seconds, so this is plenty of time to do something about it. Perhaps you're quick to enter, and just as quick to exit as price comes back to you because you notice that these trades, when they work, they just work, just like the bounce at the overnight low at G.

Q - So here, no bounce at the overnight low, but look.. price goes right through! There is no congestion, no nothing. So perhaps instead of having a limit order to go long right at the level, you wait to see what happens first... you give is 2 bars.... 10 seconds, before you hit the button to go long. Here... where price hits the blue line, if you waited 2 bars, you clearly see that you are now way below the overnight low, so waiting 10 seconds to see what price does after it reaches a level might be a good move, and if price penetrates the level, the trade is off for now.

R - You'll notice that this line here just starts here. Once again, like before, this is a higher low from the ultimate one that forms at S because I want to track the swing point that forms just before where the ultimate low or high is (keep in mind this is drawn on the 1 min chart actually and its just automatically redrawn on this lower time frame chart... I'm really not drawing trend lines on 5 sec charts!) (This is also what I love about Sierra Charts... I can set any chart to copy any drawings from any other chart)

So to clean up the rest of the day... lets go to the 1 minute.

T - Notice how we get a bounce here at the resistance level again.

U - Notice how we get a bounce the ultimate high of the day.

V - Notice how when we drew that support line at R, the swing low that was just a bit higher than the ultimate low, we get a bounce exactly here.

So now how fair are these observations? I mean with all these lines, shouldn't I be taking a trade at every line? Am I just cherry picking where this works?

Just before V on the chart above, we have price go through that support level at 4435... lets see what happens here.

W - Here we can see that we have what almost looks like a bounce again right at this level. Once price hits this to the tick, we have at least 2 bars that stay above, hence 10 seconds to enter a long.

X - Worse, we also have a bounce at that overnight low at 34.25, which also looks good for a few bars, and then fails.

So perhaps we can call these scratches, 2 point losses.. who knows. But at the same time, look at how we could have almost gotten out BE each time if we entered right at the level. Suppose we went long on a limit order right at the level both times at W and X... set a stop 2 points below.. enjoyed a few ticks profit for 10 seconds, and as price came back down, perhaps we just get out right at the same level again for BE.

Compare how these bounce at W and X look with the one at G, which just works right away and never looks back... never would give us chance to exit at BE because price never came down again. Once again, Sierra Charts is good because it can automatically trail my stop up as we climb higher, and if the rejection is good, it takes off and doesn't look back.

(Continued)

 

[k p]

This of course has to be tested more... but at least its something I can test on 5 second charts. My replay isn't all that smooth, and the thrusts that happen in the replay are usually captured quite well on a 5 sec chart as I think you can see.

Sure this might lead to lots of trades, but I don't for one minute believe that 40D happens to magically catch the perfect trade every day. If he is entering like he said he does, on higher lows or lower highs or whatever, based on tick charts even, he has a ton of entries. I keep asking him to show us some entries, a complete day's worth, but he never does. I've come to learn that of all these guys who say what should be done but don't show you how they do it, I just can't believe them. Yes they have the right idea of trading at these extremes, but the success is in the details, and they don't show the details. They give the image that they hunt the perfect trade, put it on, and sit back. If you ask me, they have to enter and exit, multiple times, before they get it right. It of course doesn't sound as magical this way. Db perhaps has a much larger initial stop, so he's not quick to exit and hence doesn't worry too much about re-entry, but who the heck knows. I can tell you this for sure though, what they say they do, what little bits they show, isn't exactly what they do, isn't the whole picture, and they only ever show perhaps one really good trade that is cherry picked out of the whole day.

The theme that I'm working through is that first I thought I needed confirmation, which the SLA gives because you wait for a RET on the 1 min chart. But this is the worst place to take a trade unless the trend is going straight up and is going to be strong! A new trader simply cannot handle price going against him too much. An experienced trader sure, but not a new trader.

What a new trader needs is little wins along the way to build confidence, to establish the trader mindset, to learn to get out quick, to learn to take profits, to learn to put on trades, etc. By going long at expected support, or short at expected resistance, with little to no confirmation, allows for scalping profits that might be good experience before you can hold for bigger gains, allows for tight stops, stops that usually work, and if hit, this really does point strongly to the trend being invalidated that you are trying to get into. With SLA entries, a 3 or 4 point loss doesn't usually invalidate the trade, doesn't invalidate the new trend, but come on, how is a new trader supposed to hold through that? So trading at the razor edge extreme is I think where a new guy needs to focus.

 

[k p]

I found an interesting quote here from Db over at TL.

http://www.traderslaboratory.com/fo...ing-sla-amt-intraday-week-2-a.html#post196742

"This is something that has to be determined by the individual. I don't want people trading the way I trade since everyone's risk tolerance is different."

So there we have it... what he shows and what he does is clearly different. I'm not saying that he is tricking us, but I think that what he thinks is good for the beginner isn't actually good for a beginner. (Hence devising a trading plan that he thinks a beginner can trade is actually not that easy for a beginner to trade) Saying this though, each beginner of course has a completely different set of fears and strengths, so its not like there is even one formula that is good for all beginners. I personally was never good at any sports that involved a ball, but I learned how to run pretty good!

I think a scalping system is good for a beginner given that most beginners are scared to be in the market for too long, they want to see a steady stream of regular "wins", they need small losses, they want to always be doing something... looking for more entries, etc. A trend following system does of course produce bigger profits, but requires a mindset that a beginner doesn't yet have. 40D was well into trading stocks for at least a year before he looked into futures, and perhaps had even more experience than this, so this doesn't even qualify him as a beginner.

Anyway... just putting this out there so my brain can work on other stuff. None of this is meant to be a criticism of Db or 40D of course... its just an observation. Heck, if you even want to go as far as calling it a rationalization on my part to help me feel better about my lack of performance over this past year, that's fine, I fully accept this as well. But this still doesn't change the fact most beginners struggle, and probably in very much the same way like me!

 

[fourtiwinks]

k p,

Glad you have observations, but they are simply too many..

Have mercy on older guys like me.. I cannot read from screen for too long as my vision gets blurry..

Btw, did you observe all these in real time, or in replay?

I found an interesting quote here from Db over at TL.

http://www.traderslaboratory.com/fo...ing-sla-amt-intraday-week-2-a.html#post196742

"This is something that has to be determined by the individual. I don't want people trading the way I trade since everyone's risk tolerance is different."

... ... I think a scalping system is good for a beginner given that most beginners are scared to be in the market for too long, they want to see a steady stream of regular "wins", they need small losses, they want to always be doing something... looking for more entries, etc...

Well, let's respect Db and move on. He is like a black-belt master of the highest dan Jedi Master with lots of experience in the Force (markets and trading). (Star Wars VII is coming!)

Gringo, fortydraws, ND and others are like Jedi Knights, helping us to master the Force.

We are just apprentices trying to learn the Force.

Let's appreciate Db's wisdom, fortydraws' and Gringo's valuable insights (and many others too!) and internalise the knowledge to make it useful in our own trading.

I have bold your thinking in the quote above. You have decided that you the scalping system seems more suitable for you. Guess you'll have to make observations to find out if that is indeed suitable for you.

 

[k p]

Have mercy on older guys like me.. I cannot read from screen for too long as my vision gets blurry..

LOL... sorry about that.

You have decided that you the scalping system seems more suitable for you.

I'm not actually trying to build a scalping system.. I'm just looking for good entries and scratches... where to place stops, etc., and then I can build from there.

 

[fourtiwinks]

Hey fortiwinks... thanks for your post.

I've actually made so many observations that I could run circles around 40D's thread! LOL

So first let me explain the 5 min chart... ... (Continued)

k p,

Please reduce your comments.. I have been scrolling up and down, trying to read your observations and associating your points with the charts provided (#1692) and it is very tough, on my eyes as well as neck.. sob..

Are you really going to make use of such reviews in your trading in the future?

Do read Gamera's commentaries in TL (His has been a good model for me to improve my commentary and observation).

A - Clearly the overnight low

B - Overnight high... but I've taken to marking these after midnight, so although the ultimate high is a bit higher, this is what I had on my chart going forward.

C - Previous day high PDH

This was what I did too..

D and E:

Bro, these pivots are in PM, where volume is very light..
Why focus on them when price later pierced them so quickly after the Open. Thanks to your observation, I will NOT track such useless pivots.. just ONH/ONL will do. Frankly, even ONH and ONL will be violated during market hours too, though not immediately.

Now let switch to the 5 sec... (I know lots of traders are rolling their eyes at me here now)

If you are comfortable, so be it. Frankly, we are trading against HFT and algos and their tf are in nano/milli-seconds.. so your 5 sec chart is very long-term to these algos. But if you don't find it helpful in future, then change it to another one that suits your needs.

F - ... .... It only goes up 6 ticks before going down.

Since you have observed that such a pivot doesn't hold, then forget about it. If it can be violated once, it can be violated again and again. So why bother?

G - Now we hit the overnight low, to the tick, and reverse. Once again, I could wait to go long after some confirmation, but now I'm getting a worse price. Now here is the thing. Had i gone long at 36, with a 2 point stop, I'm still not stopped out on hitting this overnight low, and it obvious a few bars after here, that we are heading higher. Now I'm not saying 2 points is the sweet spot, this will take testing, but what I am saying is this in the next paragraph.

You see, a new trader wants to make sure he doesn't lose money.. the best way to accomplish this is by getting in at the razor edge extreme. If you're stopped out of a 2 point trade that you took right at an extreme point, chances are much better that you will be into profit for at least a few points.

A little bit of confirmation, like maybe waiting 2 bars... hence 10 seconds, often does actually help the win rate, as I will point out later.

This is something we have to work on. The fear and pain of losing will always be with us struggling traders until we can overcome them. If you find that it helps with your win rate over time, that would be great.

H - Here we go a little past that R I was watching, but stop essentially at the overnight high. We only bounce off 6 ticks and go higher.

I - We start having trouble going higher here. We don't make it to the PDH, and we don't even go more than 2 points above the OH. So once again, if we went short at the overnight high and set a stop of 2 points... maybe we're still in, but I find that 3 points is usually better sometimes... I keep going back and forth.

By the time we see that price drops below the OH, we can start thinking ok, maybe this REJ is good, but if you're doing more than observing and actually looking for a trade, you see that your price to enter now is way way worse.

All this is interesting, and you might wanna test in SIM to find out what is suitable for you.

J - ...I'm careful to not get sucked into micro trading...

Yah, don't waste time on such pivots if you don't think they are useful. Remember, the market is trying to confuse us if we cannot observe trader behaviour carefully.

K,L,M - Surprise surprise, that damn support level is holding. Once again... do we just go long right at support? Do you wait 2 bars to see? Doesn't matter, a 2 point stop would never be hit, even if entered a few ticks above this level.

All this is interesting, though my view is G is the pivot.

N - That R level strikes again... what should we do? By the time its obvious, trade is gone, unless you enter right at the level... best price, zero confirmation, just playing the stats of this game. Usually you are right for at least a couple of points.

Well, don't waste time on such pivots if you don't think they are useful, or if they give you doubt.

P, Q and R:

Sorry bro, I give up reading.. don't know what you are trying to say..
Looking back at my own comments and with hindsight, I now realise that selling pressure was greater than buying pressure during that period.

So to clean up the rest of the day... lets go to the 1 minute.

T to W:

Wah.. so many comments again.. whew..

Bro, you have to cherry-pick.

Remember fortydraws' advice to draw a range? This requires us to cherry-pick and select only a few price pivots to form a range (and its mean). This will help us to observe trader behaviour better.

Which pivots to pick? This is what we need to figure out.

Thanks to Db, fortydraws and Gamera, I have realised PDH/PDL, ONH/ONL, and their mean (50%) are useful pivots to draw a range and frame the next trading session.

I know I sound like a noob but that is okay. Thanks to fortydraws, I have finally understood the importance of drawing a range.

 

[fourtiwinks]

So since starting this thread just a few days ago, I have been quite busy learning. Going through the all important step of watching!

... ...So what did I learn? Exactly what I've read about and what I intellectually know yet have to over come. Who cares what I think about the price, it will do what its doing so just watch it. I have to remain so flexible that it doesn't matter what its doing, I just follow it... ...

Where is this k p, who was positive and had the enthusiasm to observe price and learn more about it?

... ...I just know it will come together for me, but I am a bit impatient. On the one hand I want to start taking trades so that I see for myself that this SLA method will make money, but I also want to make sure to do it right because I don't want to have to start over again as Db warns. Having found this community though I am definitely closer to finding my way than to being lost!

Where is this k p, who took the responsibility to want to make it right?

I was shocked to to find a tired and embittered k p in the "Trading the SLA/AMT Intraday" thread , so I hope to remind you of what you were before (from your first few posts in this thread).

Hope you can get back to that frame of mind again, for yourself.

No use in blaming at others any more, k p. It doesn't do you any good.

Save your eloquence for a hot babe.. why argue with a Vietnam War veteran?

Re-start your journey as a trader and be "fresh" again. Be more patient and accountable to yourself this time.

 

[k p]

Sorry for taking so long to get back to you 40W (can I call you 40W???)

Funnily enough, I think Db is a great guy, but he is very rough around the edges, and I think he knows this too. I actually enjoy what he writes, I enjoy how he writes and I learn lots from him. I even think that some of what I'm saying is rubbing off on him. It wasn't too long ago where he said on TL that using SLA for intraday trading is tough, and that he would follow up with using SLA on a higher time frame chart. And given that he has added to the PDF with a section on fear, I think this also means that he is perhaps giving more weight to this as he sees that for most of us, what the SLA asks as to do is not easy given that we are human and don't think like him.

I am trying hard to get across that I'm not blaming anyone. I haven't once said that Db or 40D has caused me to lose $8,000. All I keep focusing on is the incomplete nature of the many things that they show, and in some cases of what 40D shows, then yes, I have to ask tough questions because some of this just doesn't add up for me.

In some respects, I am absolutely ready to start fresh again, but I've wanted to get this off much chest for quite a while now. I've also spent quite a bit of time trying to figure out why I didn't take a certain trade, why when I finally pull the trigger its at a much worse spot, which fails, which causes doubts, which prevents the next trade and ends up being this self serving viscous cycle.

So many of these things have to be solved in the brain, in the heart, at your own pace. I really enjoy ND pointing out things to me, and I appreciate her telling me that she used to be exactly like me. You see, this change of making sure I'm not looking for the perfect trade is so deeply rooted on so many levels. Its sometimes not just about being right about the trade, its about proving to yourself that you know what you're doing, its about justifying the past year of waking up early every day while still having to rely on your old job when there just aren't enough hours in the day. When that trade goes wrong, you start a negative chain reaction in your brain. And of course, that one trade has nothing to do with anything, with none of this.

I read somewhere a good quote about how people get into marriage, make that decision, at a time when they are least prepared to make such a decision. When it come to trading, it almost seems to me that success or failure initially has absolutely nothing to do with having a trading plan or not, but it has everything to do with what you bring to the table. If I knew some of the things about myself that I know now, things might have been different. At the same time, I don't think there was any other way for me to learn this other than the way I did. Thank god I didn't have initial luck or else I might have lost much more than 8k when my luck ran out. (NoDoji has a similar story in her journal I think)

Anyway, so I think that there has been this slow shift happening inside of me where I'm starting to fully embrace that I don't need to know what happens next to make money. Trading is a difficult thing because you need to give up total control of any one trade, but have to have total control over how you manage it and how you follow the rules. You throw caution to the wind when you put the trade on, and once you're in, you have to have absolute control over what you do with it from this point forward.

One of the big things I've seen is my inability to scratch a losing trade, but not let a winner run. I literally have to reprogram my entire brain to do the exact opposite and this takes time.

Anyway, enough of that babble. I am absolutely going forward with just relying on myself. I love ET for the entertainment aspect and the sharing of ideas, but I almost want to just say bullshit to everyone and everything that they say if they don't back it up with firm hard facts. And then I still wouldn't trust them unless I proved it for myself!

So I really am at the stage now where I'm just going to go forward with what I can see. I just might comes up with some type of scalp trade, set aside $400 to risk 10 trades at a 2 point stop loss each and see where I get after the entire series of 10 trades. Trading reversals from ranges is just too juicy to pass up if the trade is entered right at the extreme so I'm trying to come up with this. I need to train myself to put the trade on without hesitation, I need to train myself to take the loss without hesitation, and I need to train myself to take the next trade again, without hesitation, as I should.

 

[fourtiwinks]

Sure k p, you can call me 40W.. thou I would prefer 40winks (I like to fall asleep during the US session.. )

... ...In some respects, I am absolutely ready to start fresh again, but I've wanted to get this off much chest for quite a while now... ...

I'm afraid you have been seriously overdoing it.. to the point where even lurkers like me feel that you seem to be sliding into the point of no return. Hence, my post above to hopefully nudge you back to the beginning of your journey, and let go of any angst/doubt/cynicism.

... ...You see, this change of making sure I'm not looking for the perfect trade is so deeply rooted on so many levels.

...Trading is a difficult thing because you need to give up total control of any one trade, but have to have total control over how you manage it and how you follow the rules...

...One of the big things I've seen is my inability to scratch a losing trade, but not let a winner run. I literally have to reprogram my entire brain to do the exact opposite and this takes time...

So I really am at the stage now where I'm just going to go forward with what I can see. I just might comes up with some type of scalp trade, set aside $400 to risk 10 trades at a 2 point stop loss each and see where I get after the entire series of 10 trades. Trading reversals from ranges is just too juicy to pass up if the trade is entered right at the extreme so I'm trying to come up with this. I need to train myself to put the trade on without hesitation, I need to train myself to take the loss without hesitation, and I need to train myself to take the next trade again, without hesitation, as I should.

Here are your own steps into building your own trading plan, whether you are aware or not.

After doing the first 10 trades and analysing the results, you'll probably adjust one or two variables and do another 10 trades.. then another 10.. then another 10, etc. By then, you'll have a working trading plan to refine and meet your own expectations and temperament.

Let's start building a positive chain of thoughts and actions, for yourself. You may even start a new journal (here or private) to start afresh.

Just remember trading is a game on probabilities. Everything may be written, but nothing is for certain.

Do start with SIM first, so that you don't battle with two enemies - uncertainty and fear - at once (I'm sure you know that.. ), and all the best to you!