If You Can Draw A Straight Line (You Can Become A Successful Trader)

[barjon]

Actually I wouldn't be shorting it at all unless and until we clear 16420. But that's why the individual's objectives and risk tolerance have to be taken into account.

Note, however, that you haven't made a single higher high on the way down, so any of your potential entries would have worked.

As I've said before once or twice, if the market is behind you, it really doesn't matter where or how or when you enter, it'll be good. Which is why it's necessary to read the market rather than bars or candles.

better scratch then, lol.

Surely the point of SLA is that you don't have to read the market - your straight lines do that for you and your trade result tells you whether to retire and sit on the sidelines or not.

That's not really the point tho'. Point is, which, if any, pullback would you have used for entry if a trade at that point was appropriate. I'm with the "if the force is with you" bit, but you can't actually follow the SLA rules if you don't know how to identify an appropriate pullback and how to enter off it.

 

[dbphoenix]

better scratch then, lol.

Surely the point of SLA is that you don't have to read the market - your straight lines do that for you and your trade result tells you whether to retire and sit on the sidelines or not.

That's not really the point tho'. Point is, which, if any, pullback would you have used for entry if a trade at that point was appropriate. I'm with the "if the force is with you" bit, but you can't actually follow the SLA rules if you don't know how to identify an appropriate pullback and how to enter off it.

No, one doesn't have to read the market in order to use it. The purpose of the SLA after all is to keep the trader on the right side of the market and protect him from losses. In the meantime, coincidentally, if he's paying attention at all, he's logging in observation time, and if he keeps the sort of records of his session that he is expected to keep, whether he traded or not, he will eventually come to understand just what it means to judge the market by its own action.

Unfortunately, those who are unable to find success with it are so paralyzed by fear that it becomes a kind of black noise that prevents them even from following what are a simple set of rules.

As I said in the book, many beginning traders and all failing traders are eager to trade yet afraid to do so. Thus they seek to exploit the market while simultaneously attempting to insulate themselves from any negative consequences of attempting to do so (e.g., the "trailing stop"). That's what the bulk of the millions of trading forum posts and blogs and books and articles and newsletters and trading rooms et al infinitum hawked at Trade-O-Rama are all about. Only an infinitesimally small number of them are focused on why price moves as it does. Which is why there are so many millions (billions?) of posts (and books and blogs and so forth).

If one doesn't know how to identify an appropriate pullback and how to enter off it, then he needs to put in a little observation time to see what sort of pullback results in a successful trade and what sort doesn't, if he wants to learn how to trade price. If he doesn't, there's nothing wrong with just trading MAXOs.

 

[barjon]

...........................If one doesn't know how to identify an appropriate pullback and how to enter off it, then he needs to put in a little observation time to see what sort of pullback results in a successful trade and what sort doesn't, if he wants to learn how to trade price. If he doesn't, there's nothing wrong with just trading MAXOs...................

ok, quite happy to use my own brain - I've been trading off retracements for over thirty years, so I ought to have some ideas. I just don't think it's particularly helpful to new traders to offer them such an excellent primer without giving them more of a clue on this pretty key aspect, if only the criteria you happened to use in the trade example.

 

[dbphoenix]

For those who are following this little drama, the anticipated upmove has been invalidated on the hourly and all lesser intervals as we have dropped below 4254. The daily will not be invalidated unless and until we drop below 4118. If one is long and is willing to wait and see, that's his choice, but if he's unwilling to tolerate a stop of more than a hundred points, I suggest exiting and standing aside.

 

[dbphoenix]

ok, quite happy to use my own brain - I've been trading off retracements for over thirty years, so I ought to have some ideas. I just don't think it's particularly helpful to new traders to offer them such an excellent primer without giving them more of a clue on this pretty key aspect, if only the criteria you happened to use in the trade example.

Again, if the new trader is willing to open up a journal and specify his instrument and what bar interval he prefers to trade, I'll work with him to achieve whatever level of specificity he requires. But to say that one must trade an hourly bar and enter N ticks below the low or above the high of bar X with a stop of Y would be a waste of everyone's time.

 

[wallstreetwarrior87]

ok I've just entered DOW short, but I suspect later than you would have done. There are 2 earlier pullbacks which don't count for me since they had lower lows. The third didn't have a lower low, but nor did it have a higher high. Taken it tho'. On M5 time frame.

Did you stay in Jon??

 

[Mateus]

Again, if the new trader is willing to open up a journal and specify his instrument and what bar interval he prefers to trade, I'll work with him to achieve whatever level of specificity he requires. But to say that one must trade an hourly bar and enter N ticks below the low or above the high of bar X with a stop of Y would be a waste of everyone's time.

dbp, can you advise how to select an appropriate instrument? Should it be a company or sector I am familiar with or something that has suitable volatility/volume? I can appreciate the need to select and record observations in a journal of a single instrument, but how does one choose an instrument that will offer good trading opportunities?

Thanks

 

[barjon]

Did you stay in Jon??

Aye, to about 16392 - it's better to be lucky than good as they say. Obeyed the rules though.

 

[ffsear]

True, i dropped that James16 PA bull**** a longtime ago. One of the best decisions i made.

 

[manraygun]

As it turns out, price hits 12.5 just a minute before the open and reverses. Big-time. And while many are shocked and amazed, those who understand what ranges are for have already laid their plans and acted upon them, and they are treated to a ride down to the apex of that 5m hinge, at 84 (actually an overshoot to 81, then back).

Yikes. I suppose I should be counted among the “shocked and amazed” -- or at least in the “didn’t see it coming” camp.

I definitely did see the range form (on the 5 minute chart) before I went to bed and saw the hinge you highlighted when I woke up. But by the time of the open, I don’t think I had confidence anymore in 12.5 as a significant level. We had exited the range five hours earlier and in the meantime a new shiny thing appeared, the hinge/apex, and pulled my focus. I realized the hinge was connected to, even born of the range (lower end of range ---> apex of hinge), but in some faint corner of my mind, I remember thinking of what you said a couple of days ago about imagined support levels (in red below) and if/how that related to 12.5 in this case. I wasn't thinking that it was imagined per se, but whether it was “old news” by the time of the open.

I don't plot S&R other than to note the upper and lower limits of the range, if price is ranging. If it's trending, I trade the SLA. Anticipating a reversal off of what may be imagined support or resistance doesn't test out given that price can just as easily break through what most would consider to be S or R as not.

Obviously, as you’ve shown 12.5 wasn’t old news. Duly noted and thanks for the explanation. I’m glad barjon asked.

 

[dbphoenix]

dbp, can you advise how to select an appropriate instrument? Should it be a company or sector I am familiar with or something that has suitable volatility/volume? I can appreciate the need to select and record observations in a journal of a single instrument, but how does one choose an instrument that will offer good trading opportunities?

Thanks

I began trading the NQ in '98 because I wanted to trade something I understood. Since then I've come to appreciate mean reversion and the ease of trading something that is mean-reverting. I've also come to appreciate an awareness of the group or groups that one is trading with, or against if one wants to look at it that way. The obsession with the ES has never made sense to me as it involves trading with/against the best traders in the world. I'd much rather trade with/against the worst.

Dividing instruments into categories may be of help: stocks and stock indices, commodities, currencies, and so forth. Stocks and stock indices include sectors and groups and the relevant ETFs as well as index futures, if you have the money (if you don't have the money, you can look at something like SPY, DIA, or the Q).

So perhaps asking yourself "what do I know?" then observing candidates and asking yourself if the price behavior makes sense. Peter Lynch once wrote, in so many words, that people spend more time choosing refrigerators than researching the stocks they buy.

I like the NQ because I understand the people who trade it (a generally emotional lot) and can therefore anticipate with a fair degree of accuracy what they're going to do at any given juncture. Others may like oil or gold for the same reasons.

Those who want to trade for whatever reason grossly underestimate the value of observation, study, and practice. They are instead hell-bent on trading, and on trading as soon as possible, if not immediately, with little or no preparation whatsoever. That they lose extraordinary amounts of money should come as no surprise, but it is nonetheless a common response.

The journal, by the way, is key to this exploration given that "journal" stems from "journey", and while a journal may eventually incorporate a trading log in which one "logs" his trades, the journal itself need not and should not involve trading at all. And if comments are not solicited, it needn't even be public.

 

[dbphoenix]

:innocent:

Yikes. I suppose I should be counted among the “shocked and amazed” -- or at least in the “didn’t see it coming” camp.

I definitely did see the range form (on the 5 minute chart) before I went to bed and saw the hinge you highlighted when I woke up. But by the time of the open, I don’t think I had confidence anymore in 12.5 as a significant level. We had exited the range five hours earlier and in the meantime a new shiny thing appeared, the hinge/apex, and pulled my focus. I realized the hinge was connected to, even born of the range (lower end of range ---> apex of hinge), but in some faint corner of my mind, I remember thinking of what you said a couple of days ago about imagined support levels (in red below) and if/how that related to 12.5 in this case. I wasn't thinking that it was imagined per se, but whether it was “old news” by the time of the open.

I don't plot S&R other than to note the upper and lower limits of the range, if price is ranging. If it's trending, I trade the SLA. Anticipating a reversal off of what may be imagined support or resistance doesn't test out given that price can just as easily break through what most would consider to be S or R as not.

Obviously, as you’ve shown 12.5 wasn’t old news. Duly noted and thanks for the explanation. I’m glad barjon asked.

All of which suggests that logging in more observation time is in store. One can of course skip it, but then learning how to trade takes far longer without it.

 

[Splitlink]

I want to give you a big Thanks, db. I am following the basics of your advice-. it's getting to be a big thread, I've had a great week,

Regards

 

[Gring0]

Potential Hinge

Is anyone seeing this potential hinge on the daily? Seems like one's in the offing.

Gringo

 

[barjon]

aye, dow got one too - apex around 16250

 

[Splitlink]

:innocent:

All of which suggests that logging in more observation time is in store. One can of course skip it, but then learning how to trade takes far longer without it.

I am using the channel and shorting into strength. Basically, I am following what you said in a previous post, In certain markets one can enter anywhere, if the direction is right. With me, getting above the midline and as close to the top line as possible is a gut feeling which has paid off, for some reason, this week. The exit point has to be no more than a few points above the topline. My channel has not been broken at all today.

 

[dbphoenix]

I am using the channel and shorting into strength. Basically, I am following what you said in a previous post, In certain markets one can enter anywhere, if the direction is right. With me, getting above the midline and as close to the top line as possible is a gut feeling which has paid off, for some reason, this week. The exit point has to be no more than a few points above the topline. My channel has not been broken at all today.

The reason is partly surprise which is then fed by the further reason of panic. If one is sensitive to the "failures" at swing highs, he can then short before pretty much everybody else is even aware of what's going on. The first to panic are those who just bought, then those who have been long and decide to close their positions. Then of course there are those who see an opportunity to short. All of these elements feed each other and the decline.

If one takes these reversals, his risk as you say is minimal. And when price reaches the opposite side of what may be shaping up to be a range, he needn't be concerned about whatever mess goes on there with fake breakout attempts; he's already in; has been during the entire drop. So he can just sit back and watch.

As for the "gut feeling", you know why; you just haven't examined it. After all this time, it's unlikely that you're just jumping in for no particular reason.

 

[Splitlink]

The reason is partly surprise which is then fed by the further reason of panic. If one is sensitive to the "failures" at swing highs, he can then short before pretty much everybody else is even aware of what's going on. The first to panic are those who just bought, then those who have been long and decide to close their positions. Then of course there are those who see an opportunity to short. All of these elements feed each other and the decline.

If one takes these reversals, his risk as you say is minimal. And when price reaches the opposite side of what may be shaping up to be a range, he needn't be concerned about whatever mess goes on there with fake breakout attempts; he's already in; has been during the entire drop. So he can just sit back and watch.

As for the "gut feeling", you know why; you just haven't examined it. After all this time, it's unlikely that you're just jumping in for no particular reason.

Today's trading was mixed, for me, with the need to do other things brfore the weekend! That could suggest that sometimes it does not do to be too triggerhappy and clever. My channel was based on the FT hourly.. It had its ups and downs but I was not watching all the time.

 

[barjon]

..................The journal, by the way, is key to this exploration given that "journal" stems from "journey", and while a journal may eventually incorporate a trading log in which one "logs" his trades, the journal itself need not and should not involve trading at all. And if comments are not solicited, it needn't even be public...........

Ok, Ive begun the journey http://www.trade2win.com/boards/trading-journals/209116-getting-grips-dbp-wyckoff.html

 

[tar]

"The journal, by the way, is key to this exploration given that "journal" stems from "journey", and while a journal may eventually incorporate a trading log in which one "logs" his trades, the journal itself need not and should not involve trading at all. And if comments are not solicited, it needn't even be public."


Why ? Arent we all traders ? Or we are here just to make endless theoretical and hypothetical discussions for years to come ?