Why I won't trade patterns

I did take a moment to look at your suggested method for trading a choppy market.

This is (in my opinion) a variant of martingale strategy. It works as long as you don't run into a strong trend day. Check out Kiwi Trader's comment in that thread.

Similar strategy in Larry McMillans book "Options as a Strategic Investment" and he warns about the same problem (getting caught in a trending market). In a strong trending market, there is no mechanical (rule based) method based on a martingale strategy, that will work all the time (overcome cost to trade). Eventually you get "carried out" using that method. I certainly wish you well with that.

Steve

edit;

One more thing, a more in depth reading of that thread shows that YOU DON'T have a mechanical rule based method. You are using discretion to trade. If in fact you kept on averaging down at SOME POINT you would have to either increase your position size past your account size OR you would take a big loss. The art of this is HOW MANY TIMES YOU "AVERAGE DOWN"....I am glad you can do it. Just be sure to disclose that YOU are trading using discretion. In statistical terms you are basically playing with fire and getting away with it, for now.
 
Quote from Dustin:

Look at this ABK chart I attached. Really weak today. Descending triangle. Easy short entry with a tight stop. But, if it breaks down (I would say 60/40 chance) then there is a lot more downside possible, then there is risk of loss if it breaks upward.
More...
Dustin, would you mind sharing a bit of insight about how you entered this and about how you enter trades generically? One of the things I have difficultly with is how to put on the biggest positions for the trades that go my way. I can get as large of a short position as I want when there's plenty of strength but not nearly large enough when the market is really weak. The result is that I end up biggest at the worst times and smallest at the best times. Any hints?
 
Why "I" won't trade patterns.

The key word being I... congratulations on finding a different approach but in a sense you are trading a pattern when you use statistical analysis.

A pattern, whether it be a candle action, volume action or any other repetitive event is still just a pattern.

A flag or whatever you want to call it is nothing more then a visual representation of price during a specified parameter.

Try not to think in terms of what your seeing but rather in terms of what it means at that moment in time in relation to everything else.
 
Quote from rdg:

Dustin, would you mind sharing a bit of insight about how you entered this and about how you enter trades generically? One of the things I have difficultly with is how to put on the biggest positions for the trades that go my way. I can get as large of a short position as I want when there's plenty of strength but not nearly large enough when the market is really weak. The result is that I end up biggest at the worst times and smallest at the best times. Any hints?
More...

Some of the easiest and oldest trades are continuation setups like ABK. There are setups like that every day. Looking at that chart it's easy to see where you have a safe entry while it flatlined and never would have got stopped out before the breakdown. You have to make your own trade management rules with these like how much you want to put on before the breakdown, and when to add.

If you only like trading counter trend then it's easy to get in trouble with big positions at the worst times. I used to do a lot of that, but the occasional beatings just weren't worth it so now I stick to these easier setups.
 
Quote from steve46:
I did take a moment to look at your suggested method for trading a choppy market.

One more thing, a more in depth reading of that thread shows that YOU DON'T have a mechanical rule based method. You are using discretion to trade.
More...
steve, I also went ahead and looked at that thread. Yes, there's some stuff in there that most are going to find controversial, and that go against my assumptions too. Another quote from there that caught my eye was this
Quote from ProfitTakgFool:
Here's an important concept traders usually get wrong. A break of a downward sloping support line is NOT bearish, it's bullish. However - and this is the important part - the degree of slope determines the probability of the trade. If the support line is declining rapidly and we penetrate that level I will take the trade right on support. If the support line is falling modestly (as was the case here) I will wait for it to move farther below support before I take the trigger.
More...
To be honest I find this discussion fascinating. I feel like I'd better be constantly questioning my assumptions about this business. PTF does address some of the problems I have been seeing as I watch the intraday markets and trade 1 lots in order to get a feel for the price action.

I had not been thinking about a breach of a downward sloping support line as necessarily bullish. That's a fader's mindset for sure.

I am very wary of the well chosen example so I'll be interested to check out PTF's responses to my questions earlier to see if there is some codification or if it is indeed a discretionary strat.

I do not, however, assume that this type of strat will necessarily fail or always lead to ruin after a series of bad trades. It all depends on whether you can take the losses when they present themselves.

I like the idea of doing what the majority aren't doing. The real question is whether that style is effective intraday. I know it's effective in longer time frames. The big question is, do you get out when you are proven early, or do you pyramid your position?
 
Sorry about the disjointed posts. My posting was interrupted by events here at home.

Your point was that you are not asking for help trading. I agree, I was wrong to assume that and I apologize.

I do however disagree with your assertion that you have "figured it out", and I hope those who think this will work for them will do a little homework on the concept of "martingale betting strategies"..

A good resource for this dialogue is

"Money Management Strategies for Futures Traders" by Nauzer J. Balsara (1992)

TraderNik, sorry I am not ignoring your comments, I think if one has the skills to implement a partial martingale and some magical knowledge that tells WHEN to stop, well you have the grail then don't you? Problem is WHEN do you stop averaging down? and since each trade is independent of the previous events, how would one know HOW LONG A SERIES OF LOSSES is ahead during a given day? and finally, how many trending days would it take to blow out even a big account? Lets be clear on one thing. I am glad to hear that someone (anyone) is having success. Who wants to continually read posts from people who can't make it work. I congratulate the guy.

Thanks

Steve
 
Quote from steve46:

a more in depth reading of that thread shows that YOU DON'T have a mechanical rule based method. You are using discretion to trade. If in fact you kept on averaging down at SOME POINT you would have to either increase your position size past your account size OR you would take a big loss. The art of this is HOW MANY TIMES YOU "AVERAGE DOWN"....I am glad you can do it. Just be sure to disclose that YOU are trading using discretion.


Steve46,
I think this is what is interesting about PTF's approach. If he is making money this way (over time) secretly fascinating about PTF's thread.

Seems to me, developing the ability to trade profitably via discretion at the heart of the traders quest.

PTF, would you be willing to comment on how discretion functions within his aproach? Also, you may be using discretion without even knowing it.

Thanks
More...
 
Sorry, goofed up my sentence....


Steve46,
I think this is what is interesting about PTF's approach.

If he is making money this way (over time) then he IS a successful discretionary trader. This is what is fascinating about PTF's thread.

Seems to me, developing the ability to trade profitably via discretion at the heart of the traders quest.

PTF, would you be willing to comment on how discretion functions within your aproach? Also, you may be using discretion without even knowing it.

Thanks
Trayo
 
I don't want to beat this to death (and I'm afraid I have) so I will just say it is a difference in philosophy and the only reason I comment at all is that I hope that the trader doesn't take a serious loss because he or she underestimated the risks.

Steve
 
Quote from Dustin:

IMO you are missing a key component to the concept. Without a catalyst to propel the stock once it breaks then the strategy just isn't worth much. I know you are a futures trader, but follow me...

Look at this ABK chart I attached. Really weak today. Descending triangle. Easy short entry with a tight stop. But, if it breaks down (I would say 60/40 chance) then there is a lot more downside possible, then there is risk of loss if it breaks upward.

That is why the catalyst is important. Without it you can find chart patterns anywhere that won't have the volume or trading interest necessary to provide you the odds needed to take the trade. That's why I only trade stocks with higher than average volume. Futures traders don't really have that option, which is one reason I don't trade them.
More...

When using patterns you say volume really increases the chances that the pattern will work.

Do you use volume bars on your chart or a volume histogram along the bottom of the chart? Do you think volume bars or "x" minute bars are better for trading stocks intra-day?
 
You must log in or register to reply here.
Back
Top