Trading the NQ: Take 2

[k p]

You conduct a statistical analysis and you see that certain S/R levels produce "huge" reversal moves when they hold and you define "huge" as "more than 10 NQ points".

When I started to do this, I was discouraged by the fact that a level wasn't a damn line. Often price turned 1 point before the level. So if initially I saw that anything if price penetrated a level by more than 2 points, its means the reversal ain't happening, but then I saw that price didn't even reach this level but stopped 1 point shy of the level, then in order to get into the trade, I'd have to be taking the trade even 1 point before it reached the level. Then I have to tack on the 2 points past the level, and so now I'm at 3 points for a stop. And this example that I use it really the best case scenario because in order to capture a good enough number of moves or not get stopped out too early, I would have needed at least 3 points above the level, and get into the trade slightly more than 1 point below the level, so then I'm taking about taking a trade blindly as it approaches support or resistance, and having to use at least a 5 point stop.

Now of course if this trade hits 10 profits only 50% of the then, then I've got my 2:1 R:R and 50% win rate, just like good old geez. But this of course only works if I accept the 5 point loss each and every time, and if I make damn well sure to hold it for 10 points profit each and every time. This is clearly my downfall at the moment, the holding, so this trading plan never got off the ground just yet.

This lead me to working on figuring out a way to get into the trade sooner, and a way to get out of the trade sooner for a smaller stop, with perhaps a re-entry. Now the question of course is will all of the micro managing end up doing any good? Only a detailed statistical analysis could give this answer, which clearly I haven't done.

The RIGHT PATH is you work on this perfect execution process in a simulated account until you can hang onto the trade and the powerful positive results make you a believer.

Full disclosure, I have yet to actually trade any day in SIM. For months I assumed that I could put on some good trades, and perhaps not miss out on some good moves. I was always worried that on the day I went into SIM, my very first trade would go instantly into profit and I would have 20 points in 10 minutes (this did happen once... perhaps back in May or June of last year). So that fear of missing out keeps me out of SIM.

Since I do believe that I won't SIM trade the same way as I would with my real account anyway, I have to find a way to move forward regardless. Backtesting more would go a long way to helping this along, and I do this, but not rigorously enough I must admit as I'm more eager to wait for the next day, to practice in real time, but of course the results of my real time practice are that I don't hold the trades that work, and I skip the trades that I want to take.

Saying all this, and knowing what the right thing to do is, I do believe that I am ultimately at a fork in the road. I either do the right thing or I don't. Its wonderful that its simply all in my control. Where else in life do we have full control? Your promotion at work is sometimes not within your control, which is the way many things in life are. But I know that trading is 100% within my control, and I either do the right thing/go down the right path, or I don't. Thankfully there are many chances, and even though I've used up many, I know there are still some left. (not that I don't want the next one to be the right one though cause I am finally ready for it)

 

[k p]

There's also a personal theme here of crappy/cold trading and then better trading following that. Psychologically that can put one in a bad head space unless they really recognize the reasons for their bad trading and that they're separate trades entirely from the next one. I did not let the past mistakes take me out of the game or send me home with my tail between my legs. They were simply screw-ups, bad reads, etc. The market is not out to get me, I am out to get me and I recognize that when it happens.

Amen!

Thanks for these charts. For some reason, when I see charts with clear entries and exits marked, and I can follow along what price did just before entry, and what it did after entry, and what the trader did or didn't do about it, I find I learn so much. Of course its good to know if those trades are put on by a trader who knows what they are doing or not... LOL... but these charts tell me so much to be honest, much like how they say a picture is worth a thousand words.

I especially like how in the second chart, you caught that great long for quite a few points, and then when short, but not initially. It seems you got lucky shorting on the highest tick of course, unless that was expertly planned. I do see that you seem to use a 10 tick stop, and 10 ticks in this case would put your stop above that recent swing high at 57.92 where you took your profits from your long, so in my humble opinion, a stop for a short which is above a previous swing high is an ideal stop. Does this sound about right with what you were thinking here? Did you think that you're looking to short, and your 10 tick stop has to be above that swing high for a short, and hence this essentially dictated where your short entry would go based on the stop you were comfortable with? (ie. If your 10 tick stop couldn't get you into a short where this stop would be above that swing high, then the short trade would not be entered? ND I think works this way where she calculates what the stop on a trade would be, and if this stop doesn't allow for a big enough profit, then the trade is skipped)

When you first made this post, I remember you had written so much more but now its all gone. Did you edit your post?

And lastly, what are the TVAL, VPOC, etc. levels?

 

[NoDoji]

(ie. If your 10 tick stop couldn't get you into a short where this stop would be above that swing high, then the short trade would not be entered? ND I think works this way where she calculates what the stop on a trade would be, and if this stop doesn't allow for a big enough profit, then the trade is skipped)

You're catching on here! Like that example on the chart from the other day where you had the blue arrow. First I get the signal to go long. Then I look at the swing low. That's my line in the sand that says, "If price comes all the way back and crosses this line, my long thesis is no longer valid." If my max stop loss on a trade is 2 points, I add 2 points to the price that's 1 tick below the swing low prior to the long signal and I place my limit order there.

Now, does k p place his limit order there? Heck no! What if price keeps going lower??? Worse yet, do you know how absolutely unlikely and downright impossible it feels to be trying to get long as price is coming down??? It feels like I'm trying to buy a failed long signal!

There's another setup I've shared at length here: Continuation in a strong trend. Price breaks out to a new high and starts to pull back. The top pickers are all over it, jumping in as the bids get pulled, leaving an air pocket that makes it feel like you're going to miss out on this awesome reversal to the short side and they react with a sell order at the bottom of the air pocket where they find themselves short right where price stops cold.

The new high is my signal to go long and I'm waiting for my preferred with-trend continuation setup to appear, knowing that a lot of counter-trend traders have stop loss orders right above that new high. In fact, if there isn't enough pullback, I'm ready to buy right along with them 1 tick above the high!

Do you know how difficult it is to believe that these trade setups are going to work in my favor? Do you know how sweaty my palms were and how fast my heart was beating the very first time I placed a buy stop order above the HOD to initiate a trade instead of to throw in the towel on a loser???

k p, I'll share something valuable from quite a few years of painful experience: The market rewards that which is most difficult.

 

[k p]

k p, I'll share something valuable from quite a few years of painful experience: The market rewards that which is most difficult.

Ain't that the truth... and another ND gem!

One of the big things for me was context. Looking for these things at places where they are likely to happen so greatly increases their chances of working rather than at random places.

I have often wondered what the stats would be for taking 100 random trades, 2 point stop, 10 profit, and seeing where you are after 100 trades, but the kicker is repeating this at just the previous day levels or overnight levels. So instead of taking 100 random shorts, you only take 100 shorts at a previous day high, or an overnight high. Sure price sometimes blows right through, so you've lost 2 points in perhaps 1 second, but my gosh, just doing this at an important level might almost be an edge right there, without even having to further dissect the price action any further.

This is what gets me about the guys who try to disprove that price action trading can have an edge with their mathematical random models. They simply don't take into account that trades aren't placed randomly.

I find it interesting that you say years of painful experience. I do remember reading your journal, but I don't recall the time span from when you first started to where you took a break and studied your ass off, and when you reached consistent profitability. I am at my 1.25 year mark, and about 9k in the hole, but honestly, I don't think this is so bad in comparison to everything I read. Of course if things are done properly from the get go, perhaps time wise, you can shave this down, but I almost don't even think so because the brain takes a while to change. Money wise, I guess if I went into SIM, then I wouldn't be down 9k, but at the same time, would I have learned any lessons? Would I have given up, not having lost any money, but lost hope? Having not lost any money might not have necessitated the need to keep at it. Perhaps its the fact that I see with my own eyes, by looking at my own results, that seeing how losses can be so consistent that there must be a way to turn this around. I mean if a person can consistently lose, then surely there must be a way to turn this upside.

Anyway, I know I'm just rationalizing here and there is no point in wasting time on this, but just focusing on doing things properly the next day, and every day after that.

Now, does k p place his limit order there?

One minor little wiggle if I may. Instead of sitting and waiting at a level with a buy limit order as price is dropping, do you think (although I know you don't trade behavior and simply the stats of your setups), but do you think that it makes sense to at least wait for a few up ticks? Sure those extra few up ticks means you're paying for those extra up ticks by not getting into a long a few ticks lower, but perhaps by seeing that nobody wants to sell lower, and instead the next few trades are completed one tick higher, and then a few more one tick higher still, that this might in fact lead to even better odds? (in order words... micro price action! )

Here is a quick illustration. I purposefully differentiate the two by showing more of the buying and selling waves in the one on the right which is what a chart such as a 5 sec would show versus a 1 min chart.

Suppose price broke through a support level, rise, drop back down, and now you do a quick calculation based on your stop to see where your entry should be, and as price comes down, you are filled at your entry as per the example on the left. It might keep dropping, you don't know, but just seeing price go above the support level, you think a long looks good, so you place your buystop to go long as price is coming down.

Now in the second example, you actually wait for micro price action to dictate if the trade is placed. If price blows right through where you entry would be, you don' take it, but if you see a micro double bottom, yes, this would be on a tick chart perhaps, but you see two chances for price go to lower, but each found a buyer and hence price is supported, and finds another buyer to take price higher, then you have the tiniest bit of confirmation, and just enter with a market order. This might mean you're actually paying a few ticks more, but might this be offset with a higher win rate by seeing the behavior? I'm not trying to make every trade perfect, and you might still be buying on the highest tick just before price plummets, and I'm not suggesting this to make it safer, given that you're actually paying a few extra ticks perhaps, but I guess what I am suggesting is that this micro action might actually produce a better edge???

 

[Redneck]

Seeing though as two very good traders here, RN and NoDoji, come from exactly this same mindset, it means there must be hope for me too.

I can't speak for RN

NOD

I bet you could - as our paths pretty similar -



KP

Two things come to mind;

Get out of your own way (as guru-ish as it sounds - it is fact)

and

There's an old adage along the lines of "You can't think your way into right action; you have to act your way into right thinking."

RN

 

[Redneck]

I have often wondered what the stats would be for taking 100 random trades, 2 point stop, 10 profit, and seeing where you are after 100 trades, but the kicker is repeating this at just the previous day levels or overnight levels. So instead of taking 100 random shorts, you only take 100 shorts at a previous day high, or an overnight high. Sure price sometimes blows right through, so you've lost 2 points in perhaps 1 second, but my gosh, just doing this at an important level might almost be an edge right there, without even having to further dissect the price action any further.

This is what gets me about the guys who try to disprove that price action trading can have an edge with their mathematical random models. They simply don't take into account that trades aren't placed randomly.

Nor is the PA environment these trades taken random - we've contextualize it objectively

(in order words... micro price action! )

Here is a quick illustration. I purposefully differentiate the two by showing more of the buying and selling waves in the one on the right which is what a chart such as a 5 sec would show versus a 1 min chart.

Stop with the switching Trading TFs / trying to tick fuck price to death

For consistency to happen - YOU KP..., I repeat..., YOU;

Must be consistent - with everything

On a sustainable level


RN

 

[k p]

Stop ... trying to tick fuck price to death

LOL

 

[fourtiwinks]

...Stop with the switching Trading TFs / trying to tick fuck price to death...

RN, I wonder if you misunderstood kp's illustration? I think he was trying to explain why his 5-sec chart (micro price action) will help him to improve his edge.

Just saw kp's reply above.. I guess I was the one who misunderstood his post.. haha

(really wish kp would shorten his posts and be more concise..)

 

[NoDoji]

One minor little wiggle if I may. Instead of sitting and waiting at a level with a buy limit order as price is dropping, do you think (although I know you don't trade behavior and simply the stats of your setups), but do you think that it makes sense to at least wait for a few up ticks?

Continuation in a strong trend, I let price sweep me back into the direction of the trend, which is a "worse" price than anticipating a level will hold. Slightly higher cost of entry, higher "win" rate.

Suppose price broke through a support level, rise, drop back down, and now you do a quick calculation based on your stop to see where your entry should be, and as price comes down, you are filled at your entry as per the example on the left. It might keep dropping, you don't know, but just seeing price go above the support level, you think a long looks good, so you place your buystop to go long as price is coming down.

If price breaks through a support level, that's a potential short signal and I'll be placing a limit order to short when price rises if the context is appropriate.

 

[ubo]

BO means there was a range for price to break out from – breach of the upper range (for a BO up)..., or breach of the lower range (for BO down) is the stop – anymore of a stop is wasting money

We pay in either a wider stop…, or comish and fees to reenter – comish and fees are way less costly than an increased stop


As for trading the RET (retest or retrace) – stop would be the breach of either (breach of the low…, or high – made by either)

Why draw a loss out any further in hopes price will return

Thanks Redneck for your response.

I just want to clarify that for a breakout, you are saying that the stop is basically at the breakout level for a range. So in other words, if price broke above the top-most level, you will not allow price reenter the range, not allow price to traverse the range and not allow price to reach the bottom-most level of the range.

For the retracement, I'm not sure at what location you are referring to the stop.