Best Thread Firewalker's Journey: A path of discovery in search for enlightenment

[firewalker99]

August 24: Preparation...*update*

Setup:
- Put up a chart of the past 6 months and draw long term S/R lines.
- Put up a chart of the last month and draw intermediate term S/R lines. (*)
- Add lines at the PDH and PDL: don't act, just observe here.
- Before the day opens, make sure these lines are visible on today's chart (use 5m chart).
- Draw new S/R lines throughout the day, wherever applicable. Add the ATR (9) study.
- Pay closer attention when price moves towards a S/R zone.
- Check if price breaks this level or turns back.
- If price moves away for a minimum of 10 points in the direction of the BO then consider this to be a genuine BO.
- Wait for a price to retrace to that particular S/R level.
- When the retracement happens, there you have a trade (**)
- The entry takes places using a limit order at the exact S/R level.

(*) Try to reconcile two nearby levels into one (e.g. 5695 and 5700 will only act confusing).
(**) At that point price will likely be moving the wrong way so don't expect price to reverse straight away.


Plan for the day:

Long term S/R levels:
6200, 5950, 5800, 5750, 5575, 5400, 5300

Medium term S/R levels:
5850, 5825, 5775, 5750 ,5725, 5615

Take only long and medium term S/R levels that appear on the chart of the next day and are within a "reasonable" range of the previous trading day ranges. E.g. 6200 or 5300 are outside of that.

5850: Long after price breaks up through this level on upside and moves to 5860 or further, before recoiling back to the line. Stop is at ATR, first target is 2x ATR, second 3x ATR, because ATR is dynamic and objective. Enter with two contracts, two different targets, definining a minimum risk/reward of 1:2. After first target hit, move stop to BE. This then defines the exit.

5825: Long after price breaks up through this level on upside and moves to 5835 or further, before recoiling back to the line. Stop is at ATR, first target is 2x ATR, second 3x ATR, because ATR is dynamic and objective. Enter with two contracts, two different targets, definining a minimum risk/reward of 1:2. After first target hit, move stop to BE. This then defines the exit.

And so forth for 5825, 5750, 5725.

In turn, this depends on where price opens the next day: taking only long position of course when the trend is up and price is moving up through that resistance level, shorting when the general trend is down and price breaks the support. For instance:

5775: Short after price drops through this level on downside and moves to 5765 or further, before recoiling back to the line. Stop is at ATR, first target is 2x ATR, second 3x ATR, because ATR is dynamic and objective. Enter with two contracts, two different targets, definining a minimum risk/reward of 1:2. After first target hit, move stop to BE. This then defines the exit.

And so forth for 5750, 5725.

 

[firewalker99]

Two near-entries

Red dots are signal points that concur with the definitions from the setup.
Blue dots indicate entries (now in this example it's no entry), but I found it interesting enough to post anyway.

BO above 5825, but 5635 not touched (reached up to 5633.50).
If price had gone higher before retracing, the blue dot would have been a trade.

BO above 5850, nearly had the sign of a genuine BO, but did only reach up to 5659.50.
If price had gone higher before retracing, the blue dot would have been a trade.

 

[dbphoenix]

Red dots are signal points that concurr with the definitions from the setup.
Blue dots indicate entries (now in this example it's no entry), but I found it interesting enough to post anyway.

BO above 5825, but 5635 not touched (reached up to 5633.50).
If price had gone higher before retracing, the blue dot would have been a trade.

BO above 5850, nearly had the sign of a genuine BO, but did only reach up to 5659.50.
If price had gone higher before retracing, the blue dot would have been a trade.

Why did you not have a short trade after price dropped to 5835 at 1430 then returned to the R line?

 

[firewalker99]

Why did you not have a short trade after price dropped to 5835 at 1430 then returned to the R line?

No countertrend trades. In short, I don't want to be shorting when price has continuously been moving up... Of course this requires defining "the trend"... hmm... For this I'd borrow from Sperandeo and look for his three checkmarks which define a trend reversal... although to apply that I'd have to be drawing diagonal trendlines... So instead I'm still keeping it simple and just looking to the price movements before. Perhaps I should consider incorporating trendlines but I don't want to be running before I can walk.

 

[dbphoenix]

No countertrend trades. In short, I don't want to be shorting when price has continuously been moving up... Of course this requires defining "the trend"... hmm... For this I'd borrow from Sperandeo and look for his three checkmarks which define a trend reversal... although to apply that I'd have to be drawing diagonal trendlines... So instead I'm still keeping it simple and just looking to the price movements before. Perhaps I should consider incorporating trendlines but I don't want to be running before I can walk.

This is the sort of decision that's made during the backtesting and forward-testing processes. You would do well to define trend for yourself -- regardless of what anybody else thinks about it -- as soon as possible.

 

[firewalker99]

This is the sort of decision that's made during the backtesting and forward-testing processes. You would do well to define trend for yourself -- regardless of what anybody else thinks about it -- as soon as possible.

A trend is a pattern of price movements where price reacher higher along the way. It doesn't just reach higher, it makes new highs that are higher than the previous one (HH) and new lows that equally reach above the previous high (HL). These "highs" and "lows" can be connected into what is a trendline, a line drawn at a certain angle where prive moves, crawls, hovers,... above (in an uptrend) or below (in a downtrend).

When price breaks the trendline (not just hugging it), look back at the previous high (in an uptrend) and see if price is still able to go above that level. If not, a second sign of weakness is detected. Finally, when price goes lower than the previous swing low, I would be inclined to say the trend has discontinued. This doesn't mean price is going in the other direction, price could be heading sideways also.

I realize this definition is partly based on what others have to say on this subject but it's what I find suitable.

 

[firewalker99]

August 24 - 2nd Trade

Price dropped below S 5825 to 5815, 10 points so this signals to look for a move back to the line.
This already happened in the next bar, so entry at 5825 with a limit order.
With ATR being 8, the stop is placed at 5833 and is triggered 15 minutes later by price hitting 5833.50.

 

[dbphoenix]

A trend is a pattern of price movements where price reacher higher along the way. It doesn't just reach higher, it makes new highs that are higher than the previous one (HH) and new lows that equally reach above the previous high (HL). These "highs" and "lows" can be connected into what is a trendline, a line drawn at a certain angle where prive moves, crawls, hovers,... above (in an uptrend) or below (in a downtrend).

When price breaks the trendline (not just hugging it), look back at the previous high (in an uptrend) and see if price is still able to go above that level. If not, a second sign of weakness is detected. Finally, when price goes lower than the previous swing low, I would be inclined to say the trend has discontinued. This doesn't mean price is going in the other direction, price could be heading sideways also.

I realize this definition is partly based on what others have to say on this subject but it's what I find suitable.

Your definition of "trend" is that of a stairstep trend, and you may find it too restrictive. Or you may not.

As for breaking the last swing low (LSL), that's the definition of a reversal. If that doesn't serve you, then you need to come with some other criteria or criterion for a trend reversal.

 

[firewalker99]

Your definition of "trend" is that of a stairstep trend, and you may find it too restrictive. Or you may not.

As for breaking the last swing low (LSL), that's the definition of a reversal. If that doesn't serve you, then you need to come with some other criteria or criterion for a trend reversal.

What kind of trends would you distinguish then?
For a trend to reverse instead of something else (like retrace) I'd also want to see volume coming in, but as I've left that out of the equation, that can't be a criteria... I could go looking for signs of a trend reversal by identifying patterns as head & shoulders, W tops/bottoms, V reversal, doji bars, etc but most of the time the reversal will have happened already after I was able to detect it.

Edit: I was actually wondering if you'd rather have me posting Nasdaq charts instead of DAX, as the exercise was on NQ and you also trade that and are already know the S/R levels etc...

 

[dbphoenix]

What kind of trends would you distinguish then?
For a trend to reverse instead of something else (like retrace) I'd also want to see volume coming in, but as I've left that out of the equation, that can't be a criteria... I could go looking for signs of a trend reversal by identifying patterns as head & shoulders, W tops/bottoms, V reversal, doji bars, etc but most of the time the reversal will have happened already after I was able to detect it.

The stairstep trend is one that anybody can trade. However, any succession of higher lows and higher highs defines a trend. The more grudging the higher lows and higher highs are, the more difficult the trend is to trade (it's called "creep").

You can be as restrictive as you like, but the more restrictive you are, the fewer trades you'll get. The less restrictive you are, the more likely you are to be wrong.

As for the reversal, if the classic definition is not satisfactory, there are many others. Apply them to whatever you're trading and see for yourself what works best in the context of your strategy.

 

[firewalker99]

The stairstep trend is one that anybody can trade. However, any succession of higher lows and higher highs defines a trend. The more grudging the higher lows and higher highs are, the more difficult the trend is to trade (it's called "creep").

So I should find out for myself say a minimum angle to distinguish an upmoving trend from a sideways move?

You can be as restrictive as you like, but the more restrictive you are, the fewer trades you'll get. The less restrictive you are, the more likely you are to be wrong.

I'd rather be more restrictive. Today is perhaps one of the days that I'd see a clear trend on DAX, but indeed more than I like I find price to be going around in seeming to direction at all.

 

[dbphoenix]

So I should find out for myself say a minimum angle to distinguish an upmoving trend from a sideways move?

The angle isn't especially pertinent. As I've said elsewhere, the trend change is defined by the failure to make a HrH and a break of the TL. The reversal is defined by a drop below the LSL, though this is not an absolute guarantee.

 

[firewalker99]

Looking for third trade

Price has gone 10 points below previous S of 5825.
I'm looking to see it retrace back to 5825 or drop further below 5775.
Probably no big moves next hour as it's lunch time across the ocean...
(and about dinner time for me)

 

[firewalker99]

... as for the third trade...

didn't last very long:

Entry @ 5825 with limit order. ATR = 4 so stop was placed at 5829, only to be hit minutes later. Even if stop would not have been hit, target of 5817 would have never been reached. If I had not been stopped out, I'd probably moved my stop to BE after it went to 5820 because of the little time remaining...

 

[firewalker99]

August 24 Review

3 Trades
L 5775, target 1 @ 5795, target 2 @ 5805 = +50
S 5825, stop @ 5833.50 = -8.5
S 5825, stop @ 5829 = -4

Big difference in results, because targets and stops are based on ATR and volatility can be very different throughout the day on DAX.

Standings:
* P/L = 50:12.5
* W/L = 1:2
* biggest loss = 8.5pt
* max number of successive losses = 2

 

[firewalker99]

August 25 Preview

Setup:
- Put up a chart of the past 6 months and draw long term S/R lines.
- Put up a chart of the last month and draw intermediate term S/R lines. (*)
- Add lines at the PDH and PDL: don't act, just observe here.
- Before the day opens, make sure these lines are visible on today's chart (use 5m chart).
- Draw new S/R lines throughout the day, wherever applicable. Add the ATR (9) study.
- Pay closer attention when price moves towards a S/R zone.
- Check if price breaks this level or turns back.
- If price moves away for a minimum of 10 points in the direction of the BO then consider this to be a genuine BO.
- Wait for a price to retrace to that particular S/R level.
- When the retracement happens, there you have a trade (**)
- The entry takes places using a limit order at the exact S/R level.

(*) Try to reconcile two nearby levels into one (e.g. 5695 and 5700 will only act confusing).
(**) At that point price will likely be moving the wrong way so don't expect price to reverse straight away.


Plan for the day:

Long term S/R levels:
6200, 5950, 5800, 5750, 5575, 5400, 5300

Medium term S/R levels:
5850, 5825, 5775, 5750 ,5725, 5615

Short term S/R levels from previous day: 5755 perhaps but as 5750 is already up on the chart no new S/R identified. Low of the previous day (5755) and high of the previous day (5860) also coincide with S/R levels 5750 and 5850 so no extra lines on chart.

Look for trades long (only in the direction of the trend):
5850: Long after price breaks up through this level on upside and moves to 5860 or further, before recoiling back to the line. Stop is at ATR, first target is 2x ATR, second 3x ATR, because ATR is dynamic and objective. Enter with two contracts, two different targets, definining a minimum risk/reward of 1:2. After first target hit, move stop to BE. This then defines the exit.

Need to look for resistance above that level, but apart from 5950 there doesn't seem to be anything apart from "air" for over the past year.

Look for trades short (only in the direction of the trend):

5825: Short after price drops through this level on downside and moves to 5815 or further, before recoiling back to the line. Stop is at ATR, first target is 2x ATR, second 3x ATR, because ATR is dynamic and objective. Enter with two contracts, two different targets, definining a minimum risk/reward of 1:2. After first target hit, move stop to BE. This then defines the exit.

And so forth for 5800, 5775, 5750.

 

[dbphoenix]

3 Trades
L 5775, target 1 @ 5795, target 2 @ 5805 = +50
S 5825, stop @ 5833.50 = -8.5
S 5825, stop @ 5829 = -4

Big difference in results, because targets and stops are based on ATR and volatility can be very different throughout the day on DAX.

Standings:
* P/L = 50:12.5
* W/L = 1:2
* biggest loss = 8.5pt
* max number of successive losses = 2

Is there any difference between what you did and what you should have done?

 

[firewalker99]

Is there any difference between what you did and what you should have done?

Not that I'm aware of. Although I was inclined to take a long entry between 12:30 and 13:00 as I had a very strong feeling price would continue upwards. Also, at 1730, after the trade was stopped out (but only just) I felt a real opportunity that price would further decline after seeing it go below 5825 just before 1800. But I never acted on those feelings. Nevertheless I was surprised to be right.

 

[dbphoenix]

Not that I'm aware of. Although I was inclined to take a long entry between 12:30 and 13:00 as I had a very strong feeling price would continue upwards. Also, at 1730, after the trade was stopped out (but only just) I felt a real opportunity that price would further decline after seeing it go below 5825 just before 1800. But I never acted on those feelings. Nevertheless I was surprised to be right.

Then three things:

Type in What I Did and put your summary there.

Next, What I Should Have Done. If you did exactly what you should have done, say so. If you followed your plan, say so. If you maintained your discipline, say so. If you wish you hadn't, hold that for

the third item, To Think About (at some point in the future). Here you put down your ideas for things to modify or add or subtract. Things to test. But not tomorrow. Sometime. Just get it down on paper at the time and for the day that that it occurs to you. If you "felt" something, write it out. What it was, what prompted it, how it turned out, etc. Within a day or two, you'll forget all of it.

 

[firewalker99]

Then three things:

Type in What I Did and put your summary there.

Next, What I Should Have Done. If you did exactly what you should have done, say so. If you followed your plan, say so. If you maintained your discipline, say so. If you wish you hadn't, hold that for

the third item, To Think About (at some point in the future). Here you put down your ideas for things to modify or add or subtract. Things to test. But not tomorrow. Sometime. Just get it down on paper at the time and for the day that that it occurs to you. If you "felt" something, write it out. What it was, what prompted it, how it turned out, etc. Within a day or two, you'll forget all of it.

As with the Three Things, good idea. But as for writing on paper what I felt... I think that would draw me back right where I started, trading on "feelings" and hunches and that costed me dearly. Today I was right perhaps, but I consider it nothing but luck. I know that if I were to trade on those "feelings", things could be over very soon.