A Year With No Setups

[DionysusToast]

Like many other people, I started out trading looking for 'setups'.

To me, a setup was going to be a very specific beast. It would have a beginning (entry), a middle (management) and an end (exit). A setup would consist of a series of rules which I could follow methodically (with my brain switched off) and make money. My foe in this game would be ‘psychology’; this evil beast would be on my back goading me into breaking the golden setup rules. The setup would be the Knight in White shining armor, a brave and valiant soul that would help me slay the psychology dragon.

Setups would have to come from elsewhere. I would travel wide and far in search of pointy hatted wizards who magically brew up setups and let a few privileged Apprentices in on their secrets, usually at $499.99 (a $1000 value) a pop. There would be white wizards and dark wizards. The dark wizards paced the halls of Barnes and Noble offering fruits that turned to dust on the bus home. White wizards would appear magically on the mystic web and Skype rooms and disappear soon after the wand of Paypal had been waved.

If I didn't have a setup, I'd be trading at random, I'd be using my gut, I'd never be consistent. I’d be letting the psychology dragon make me do evil things to my account. Without setups I would never be able to trade. Yet where to find a setup? “Create your own” the peasants cried. Me? Create my own setup? With no wizard by my side, I had yet to even see a working setup. Create something I’ve never seen? I don’t even know the ingredients…

“Oscillator, Indicator toil and trouble;
Averages burn, and candlesticks bubble.”

Off I went to the spell books but only to find a hundred set of ingredients with a thousand ways to tweak them. The combinations and permutations were endless. The light at the end of the tunnel grew further and further away. ..

This is where the story stops for many people. Even worse, this is where the story loops and repeats itself. Everybody’s story is different of course but there are common themes.

What if setups are not the answer?

Let’s say you make a New Year’s resolution for 2012. Let’s say your New Year’s Resolution would be to end your setup quest. This might sound a bit odd. If the repeatable setup doesn’t exist, how will you enter a trade? If you can’t trade setups what can you trade? Let’s just say that setups are your left hand and we are going to tie that hand behind your back for the duration of 2012. With this in mind, what are you going to do?

A year with no ‘setups’. Anyone?

 

[Eric Geddes]

A very well-made and relevant point. But until you've been through the sorcery syndrome you just don't appreciate what and what isn't worthwhile. I too suspect that many people fall by the wayside after this stage, but if you can pick yourself up and rationalise what you have experienced then the fog starts to clear.

I still think you need a setup but perhaps not in the formal way of the recipe books. You've got to know why you should enter/hold/exit and this has to come from a proper understanding of what,when and how you trade.

My enlightenment came when I acquired patience, used a very simple chart with my trendlines and just one indicator. A small number of well-chosen trades was much more profitable - forget magic formulas just read the chart. And possibly the biggest decision is to decide what sort of trading timeframe suits you (but still look at charts from different time frames to get the big picture).

It stands to reason that if trading was as simple as following a formula, no one would have a day job because they would all be at home earning fortunes on the market. And we know that aint so!

 

[Lord Flasheart]

Hmmm. I totally take your point but the major issue i have with it,particularly for new and failing traders is this. If you don't have set up rules etc,you will always find and see a reason to trade. I don't have setups as such,but anyone watching my live trades can soon workout that i have favored patterns. I guess what I'm saying is that although i don't have set ups as such, every trade i take is a setup based on what I have learnt and history repeating itself. Even after all of these years of trading I still find trades and setups to take that I shouldn't because I don't have any exact entry criteria that would stop this.

 

[Hotch]

It stands to reason that if trading was as simple as following a formula, no one would have a day job because they would all be at home earning fortunes on the market. And we know that aint so!

simple != easy.

 

[oiltanker]

yes trading price with time charts is a funny assumption to make?

 

[DionysusToast]

Hmmm. I totally take your point but the major issue i have with it,particularly for new and failing traders is this. If you don't have set up rules etc,you will always find and see a reason to trade. I don't have setups as such,but anyone watching my live trades can soon workout that i have favored patterns. I guess what I'm saying is that although i don't have set ups as such, every trade i take is a setup based on what I have learnt and history repeating itself. Even after all of these years of trading I still find trades and setups to take that I shouldn't because I don't have any exact entry criteria that would stop this.

Good point... exactly what does "no setups" mean?

 

[Shakone]

What if setups are not the answer?

Let’s say you make a New Year’s resolution for 2012. Let’s say your New Year’s Resolution would be to end your setup quest. This might sound a bit odd. If the repeatable setup doesn’t exist, how will you enter a trade? If you can’t trade setups what can you trade? Let’s just say that setups are your left hand and we are going to tie that hand behind your back for the duration of 2012. With this in mind, what are you going to do?

A year with no ‘setups’. Anyone?

With no setups allowed, I'd be looking more at context and devote my time to understanding general direction, where the market wants to go and why. Spend some more time understanding the instrument's behaviour. If it makes a new high, how likely is it to test that high again before the day is out? If it tests yesterdays high/low and reverses, what's likely to happen, and so on. I'd also look into market making, i.e. if I just quote bid ask prices at various levels, could I make money from those who are using candles and indicators? Look at where people will be feeling pain if long or short and how to capitalise on that.

In the end though, it's still going to revert to some sort of setup. In that there will be areas that you think the market will go, regions you think are reasonable for entering and a place to exit if losing. Even if you just traded on gut, all of those things would still be in place. Just not so definable.

So DT what would you do? No setups, no bars, no T&S, nothing repeatable. What would you focus on?

 

[wackypete2]

Good point... exactly what does "no setups" mean?

That might be unanswerable. Unless you are trading blind or randomly you are always looking for something that alerts you to enter/exit, even though it may not be the conventional "set up" that most people look for. Even traders that don't use indicators and just use DOM or level 2 know what they are looking for although it may be difficult to explain to an onlooker.

Peter

 

[DionysusToast]

So DT what would you do? No setups, no bars, no T&S, nothing repeatable. What would you focus on?

I didn't actually say no bars. In fact, I was in one earlier (hic)....

I have no objections to charts, DOM, T&S, volume profiles, market profile, pit audio, moon phases, horoscopes being used whilst your setup arm is tied behind your back.

Just no setups.

 

[DionysusToast]

That might be unanswerable. Unless you are trading blind or randomly you are always looking for something that alerts you to enter/exit, even though it may not be the conventional "set up" that most people look for. Even traders that don't use indicators and just use DOM or level 2 know what they are looking for although it may be difficult to explain to an onlooker.

Peter

You are right,it might be unanswerable but perhaps we can all agree on a definition

I think Shakone alluded to it - getting a read as opposed to checking boxes. Perhaps it's left brain vs right.

It's not randomness though or coin flipping. At least I dont think so.

 

[wackypete2]

I didn't actually say no bars. In fact, I was in one earlier (hic)....

Just one??
amateur

Peter

 

[DionysusToast]

Just one??
amateur

Peter

To be honest, it was more like a cart with plastic chairs & tables outside where me & the missus ate for 60 Baht, whilst I drank a 59 Baht 500ml can of Heineken from the 7-11 who's car park the 'restaurant' was in.

This is somewhat of a departure from the 7 kitchen preen-yourself first restaurant with a strict dress code we were in yesterday where my 2 year old daughter had a pamper mis-alignment which resulted in her taking a sh1t on the floor of the main dining room.

Happy days.

 

[wackypete2]

Suppose you traded based SOLELY on fundamentals? I suppose you can do that without any type of set up or "read". By definition you'd be a longer term trader and the exact price you enter at won't really matter much. But you'd have to then draw the line between trader and investor.

Peter

 

[Shakone]

Well I don't know if this is anywhere that DT intends to go. I look for setups (lol, busted!), bar formations. I see the bar formation, but that doesn't mean I take it. Why might I not take it? Bunch of reasons. The bar formation occurs as a short on EURUSD at 1.3502. I'm going to have to short into that big round number of 1.3500 which hasn't been hit in weeks, and be prepared to watch it reverse through my entry, either temporarily or for good. Screw that! You take it. I'll look for the reaction and take that one, which will probably go and hit some stops which are below 1.35, but even though I know there's a good chance it's going to go below that big number, I'm still not sitting through the pain of entering right in front of it the first time.

Or I know there's a bunch of traders trapped (you can infer this from the bars), and they want to exit pretty close to where I'm looking to enter. No thanks. The current bar formation won't tell you this. The previous bars and the context might. Or it's a long entry on a day like 9th Nov on EURUSD. It's just getting killed. You could enter short at almost any point in that day, and the market would give you profts or at least give you an opportunity to get out near breakeven. Enter long? Maybe. With a very tight stop. And probably reversing if you're wrong.

It's still just a setup to me though. Setup with context.

 

[robster970]

Isn't the point being discussed here, discretion?

For example I don't take all swings on ES daily charts if you go by charts. Also if you go by charts, I'm usually in shortly after the low/high has formed rather than waiting for a chart based confirmation.

How? Volumes on ES, volumes on SP, figuring out where the liquidity is, reading the orderflow for signs of price movement being reversed under high volume.

How would you qualify this to someone as a set-up - difficult. The concept is simple but in practise it's a lot harder because you have to feel your way around it. It's not mechanical.

You trade entry/exit location for 'confirmation' and confirmation ultimately is a lot more subjective a quality than people first realise.

 

[Hotch]

I am of the opinion that anything (within reason) you're going to do is a system, just because you can't define the criteria doesn't mean there isn't one. I'm sure with a bit of coding, you could acquire a good approximation of the "rules" of a discretionary trader if you got them to play that chart game long enough.

 

[DionysusToast]

Isn't the point being discussed here, discretion?

Possibly it is. I dont profess to have the answers (for a change).

Still, if we consider what discretion is as discussed on many trading forums, then it's often still more of the same.

So we might say, "I trade support unless the move into support has high volume". Then you could define relatively high volume mathematically and it'd be a setup. If you DIDN'T define it mathematically, you sort of 'licked your thumb and stuck it in the air", it'd be discretionary. Still, it's the same thing.

So - if you went outside of this paradigm, with that hand tied behind your back, where would it leave you?

BTW - good acid.

 

[DionysusToast]

I am of the opinion that anything (within reason) you're going to do is a system, just because you can't define the criteria doesn't mean there isn't one. I'm sure with a bit of coding, you could acquire a good approximation of the "rules" of a discretionary trader if you got them to play that chart game long enough.

I'd disagree with the coding thing.

Now - bear in mind that I'm 41, have been coding since I was 13, had my first commercial system go live when I was 16 (tyre inventory/sales), had sex with Clive Sinclair at 17, took an IT graduate job at 18, discovered women at 35, worked in IT for quite a bit, basically I'm no slouch but I like to blow my own trumpet when my stomach doesn't get in the way.

Anyway - I can hand on heart say that there isn't a cat in hells chance you could program the way I trade.

And that is from someone that has succesfully programmed "not a cat in hells chance" on a number of occasions.

 

[robster970]

The example you gave is where I came from. I then learnt to trust my judgment.

I suppose it pushes you into a place where your real time market reading skills make the difference rather than caring about the nuance of an entry trigger.

In reality though, you know some scenarios stand a better chance of generating a +ve return over time than others.

 

[VielGeld]

Interesting thread, because this is exactly how I trade. Look for S/R and get an intuition/feel for the move through context, kind of like how a painter would approach his canvas.

Imo, trading purely by bar formations/technical patterns is suicide. What if it's bait? These could be well-known formations and so the big players can push it around with large orders. Even perfect "setups" can go wrong with adverse events that have nothing to do with the chart you're looking at.

As Pete says, I think only position traders can afford to go purely mechanical. You must use discretion in all matters trading.