Trading the NQ: Take 2

[NoDoji]

The idea, which I realize I didn't get across too well in my video, is to only be looking for trades at places that would make sense if trading a 1 min chart, or even a 5 min chart. Its just that if someone is to say have a rule above buying above a 1 min bar that rejects a level, well if this bar is 5 points high, you're getting in 5 points above the REJ, so looking for a way to get in sooner I think leads to a smaller stop.

Instead of looking for ways to get into trades sooner (jumping the gun), I've found the odds of profitability increase dramatically when you let the market tip its hand (price action signals a potential price swing is starting), then use a limit order to enter at a price that allows a technically feasible stop loss that fits your risk parameters or use a stop order to enter on the first hook after the pullback. There's always a pullback. And if price runs really far before there's a pullback, the odds that the hook trade will take price to a new high or low are incredibly high.

That "17" level that stood as support in your video today was based on a straight up rising trend line, with 18 being the TL to the tick. These are the sorts of key levels where you can just place you limit order at the TL price level and use a 2 pt stop with a target being somewhere above the last high. No tiny bar intervals or magic patterns/indicators are necessary.

 

[k p]

That "17" level that stood as support in your video today was based on a straight up rising trend line, with 18 being the TL to the tick. These are the sorts of level where you can just place you limit order at the TL price level and use a 2 pt stop with a target being somewhere above the last high. No tiny bar intervals or magic patterns/indicators are necessary.

Yes... if I draw in this TL, this is essentially what is happening (although my TL is slightly lower for some reason). But I'm just not all that comfortable using trendlines as reasons for initiating a trade just yet. (though a 2 point stop, which I would love to use, is often very effective and usually enough). For some reason, diagonal trend lines are more subjective to me rather than horizontal levels. (although these horizontal levels are often more of a range and not a firm level to the tick which makes it even more tricky)

What this brings up for me though is this question. Are buyers buying because they see the trend from overnight and all are jumping on board when they see price approaching the trendline? Or are they buying because of what could be a double bottom at the opening low that was put in just a few seconds after the open? And furhtermore, was this low that was initially put in at 17 the result of this level acting first as resistance during the overnight session for the hour and a half before the open? I guess in this case, having multiple reasons, and having multiple traders each looking to buy at these levels for these multiple reasons is why price took off the way it did without barely a retest or retrace.

Instead of looking for ways to get into trades sooner (jumping the gun), I've found the odds of profitability increase dramatically when you let the market tip its hand (price action signals a potential price swing is starting), then use a limit order to enter at a price that allows a technically feasible stop loss that fits your risk parameters or use a stop order to enter on the first hook after the pullback. There's always a pullback. And if price runs really far before there's a pullback, the odds that the hook trade will take price to a new high or low are incredibly high.

This of course makes total sense and what I am trying to do but find it difficult. As you always say though, the best trades are the ones that feel initially not that great.

The truth of the matter is that I never do replay (since I figure I already know what happened), and I barely do SIM trading. I'm simply staring at charts all day after the market closes and reading too many posts. Its a terrible work ethic, but one I have to openly admit. If I did all this in replay and SIM and got comfortable with entering like this, then I would be in a much better position to do this in real time with money on the line. There is simply no excuse other than my stubbornness. (which I'm hopefully shedding) In order to do what feels most uncomfortable, which will end up being the best trades after all, I have to get comfortable with it so I am certainly putting much more effort into this going forward.

I'm trying to shed the fear of not knowing what will happen because once I know, then it moves to the fear of missing out since now price is much further away from where I needed to get in. And as always, there is no perfect trade, but there is the ideal entry, which is what I should shoot for, regardless of the outcome.

 

[i960]

It's not necessarily about movement - it's about price/volume reaction around support/resistance (even minor ones) and detecting big money/algos punking small money. A 5 sec chart isn't going to help you on a 5-15m timeframe.

 

[k p]

It's not necessarily about movement - it's about price/volume reaction around support/resistance (even minor ones) and detecting big money/algos punking small money. A 5 sec chart isn't going to help you on a 5-15m timeframe.

Fair enough. I don't want to introduce volume into it... not until very much later perhaps, but I fully agree that the big money/algos is who has to be getting in or out. Even that one quick down move that I mentioned less than 2 minutes into the open with price dropping over 3 points in only a couple of seconds is I'm sure the result of their handy work.

So then what gives you the clues about what the big money is doing and in which direction price will go?

 

[NoDoji]

For some reason, diagonal trend lines are more subjective to me rather than horizontal levels. (although these horizontal levels are often more of a range and not a firm level to the tick which makes it even more tricky)

What this brings up for me though is this question. Are buyers buying because they see the trend from overnight and all are jumping on board when they see price approaching the trendline?

View attachment 153841

In a well-defined trend like the chart you posted, the trend line is considered the ultimate value entry because if the trend line holds again, you're in at a superb price for a run to test the previous high or low in the trend. And it's also a low risk entry because if you use a small stop, you've paid very little for the opportunity to get in at a bargain price. And since the first break of a trend line in a well-defined trend fails far more often than not, you can even use a wider stop loss and still end up with a great profitable run or a chance to exit break even.

I'm trying to shed the fear of not knowing what will happen because once I know, then it moves to the fear of missing out since now price is much further away from where I needed to get in. And as always, there is no perfect trade, but there is the ideal entry, which is what I should shoot for, regardless of the outcome.

This is what I've been saying for months now. Your looking for certainty in an environment where there is no way to know for sure what will happen next. The fear of uncertainty keeps you out of profitable trades and then the frustration of watching price run without you and the subsequent fear of missing the entire move lures the emotional reaction brain into entering at a price level where the risk:reward is so skewed, the outcome is usually a loss.

There are perfect trades, by the way. Any trade that's entered and managed according to your trading plan is perfect.

 

[i960]

Even that one quick down move that I mentioned less than 2 minutes into the open with price dropping over 3 points in only a couple of seconds is I'm sure the result of their handy work.

Yes they're hunting stops to acquire liquidity before a move.

So then what gives you the clues about what the big money is doing and in which direction price will go?

It's not necessarily big money but it's traders with size. I look for where they're probably thinking the small trader stops and pain points are and how many times they've forced the price into that area to cascade stops into their own orders. Volume spikes and long wicks are the evidence after the fact. Local support and resistance also matter.

In some instruments its more brutal than others (Gold) and at times can actually be dangerous to bottom or top pick.

 

[k p]

Can't argue with anything you say as I've "felt" this myself.

Volume spikes and long wicks are the evidence after the fact.

So when you say after the fact... this implies that its too late to do anything about it. How to deal with this in real time? Perhaps you can help with this one specific example.

I contrast two areas on this chart. The first, which recovered quickly, and although it led to a tight range, that initial thrust down was quickly bought back up and could have very well been trying to stop out the initial longs who just jumped on board after clearing that opening high.

But in the second example, where price initially goes above the ONH, it too takes a pause. Perhaps some people took a short, and there is the thrust up that may at first look to be stops being run of the shorts if they put stop just above the pink line. But this one kept going for a few more points, in fact over 6, and it didn't really look back and gave no opportunity to enter.

So one move was rather a fake in the opposite direction, whereas the other was a genuine move up. How to tell? Perhaps I should include a T&S window when I do these videos?

 

[k p]

Ok.. seeing as this was important enough, I made a video showing these two things live, with a T&S window open that is filtered to show transactions with a volume higher than 10. If anything has any hints, I'd love to read.

 

[i960]

So when you say after the fact... this implies that its too late to do anything about it. How to deal with this in real time? Perhaps you can help with this one specific example.

It's not going to usually happen just once - you observe it happening to see what's going on and potentially who's getting positioned and how. There will be multiple cycles of this (to gather liquidity) before the next move.

I contrast two areas on this chart. The first, which recovered quickly, and although it led to a tight range, that initial thrust down was quickly bought back up and could have very well been trying to stop out the initial longs who just jumped on board after clearing that opening high.

Quick spikes like that without some prior consolidation of some sort often retrace right after the move. The whole area is a liquidity zone for the next real move. If one thinks it's going to go up they shouldn't be buying a breakout they should be buying a smackdown. It's also right in the middle of the previous day's value area - hence it's going to meet some temporary consolidation. The actual time is also near the session open where things will typically move faster than normal (that still doesn't mean it's okay to buy breakouts).

But in the second example, where price initially goes above the ONH, it too takes a pause.

IMO, the ONH doesn't really matter, but in this specific case it didn't pause on the ONH - it paused on the PDO, and if you look at the previous day session you'll see continual resistance against that same price. That's why the "pausing" was happening - it's a resistance level. Right prior to the pause it busted through the PDC but that is less important.

Perhaps some people took a short, and there is the thrust up that may at first look to be stops being run of the shorts if they put stop just above the pink line. But this one kept going for a few more points, in fact over 6, and it didn't really look back and gave no opportunity to enter.

That wasn't a stop run, that was straight up buying. There's no good opportunity to enter after this point because the opportunities already presented themselves and were done. The 20 point move could have been taken just by buying any low in the prior consolidating range.

So one move was rather a fake in the opposite direction, whereas the other was a genuine move up. How to tell? Perhaps I should include a T&S window when I do these videos?

These 5s charts you're using are not giving you context for where price actually is, more importantly there's no annotations for prior S/R levels, prior volume profile, etc. - all that's on the chart is ONH and PDH, of which only the latter is useful.

Here is what I recommend if you're going to keep using this 5s chart. Choose a master chart (perhaps 5m or 15m). Set your other smaller timeframe charts to "copy drawings from" (the master chart #) in the chart settings/advanced settings 2 dialog. Then set horizontal lines for all significant support and resistance levels observed from the previous day. Right click on the line and select 'modify text' to add an annotation to it - or use colors to convey support and resistance somehow (this is one of the reasons I use volume profiles).

Today's price action was low hassle.

 

[k p]

If one thinks it's going to go up they shouldn't be buying a breakout they should be buying a smackdown.

Fully agree. On the hindsight chart, it looks so easy, in real time, I have to say that I haven't trained myself yet to be comfortable with buying the smackdown. I wait to see it take off again, and this usually means I'm now getting in a few points higher, and with a tight stop, I have often been taken out. But I know that this is something I need to fix, just saying that my "in the moment" thought patterns aren't quite lined up how they should be.

IMO, the ONH doesn't really matter, but in this specific case it didn't pause on the ONH - it paused on the PDO, and if you look at the previous day session you'll see continual resistance against that same price. That's why the "pausing" was happening. Right prior to the pause it busted through the PDC but that is less important.

Here is a compressed 5 min chart showing the previous few days. At the red arrow is this area in question, what I call my ONH, but you call it the previous day open PDO? I've got the previous day open at the green arrow, roughly 4413, well below the area in question which is around 4428. Perhaps one of us has something mixed up?

These 5s charts you're using are not giving you context for where price actually is, more importantly there's no annotations for prior S/R levels, prior volume profiles, etc. - all that's on the chart is ONH and PDH, of which only the latter is useful.

Yes, the 5 sec isn't giving me context, but even in your previous paragraph when you say that the buying to get in on the 20 point move could have been made at any low of the previous consolidation range, I fully agree, and its in this 5 sec chart that the range really stands out for me. On the 1 min chart, its just a few bars clumped together.

You've got some really good stuff in this post here i960. This is exactly what I'm looking for when I say that I'm trying to figure out what to be thinking in real time. The key of what to be thinking is to be buying at the lows of range consolidation. (its just that as I said in my video, given the consolidation, I just didn't know if it would break up or down, but I knew at least to either buy at the lows, or sell short at the top of the consolidation... and I also know that buying the breakout of the consolidation is far too risky).

Thanks again for this great post.

Oh.. one more question.. when do you consider the Previous Day close to be? 4pm NY time? Or 4:15?

Also, if you don't consider the overnight range, what levels do you consider? Is it simply where the market has turned before? The level around which most of the volume happens... the consolidation area? Or would you also say the PDH, PDL and PDC, and even perhaps the PDO (previous day open)?