Setups! Finding, Defining & Testing Them

[SOCRATES]

No frugi, sideways is something completely different. The volatility is not sufficiently marked in terms of being capped and supported to provide a comfortable range within which to carry out lighning raids.

It may be an indication of a respite in the proceedings in a bull phase, for example leading to even higher prices, or in a bear phase for example leading to even lower prices.

In market conditions where the intent is not clear or readable the outcome could be a reversal if for example in a bull phase the sideways drift is the result of lack of demand or in a bear phase the sideways drift is the result of supply.

Each instrument has characteristics within each market and within each market condition, but generally speaking the Racking is characterised by sharp, clearly marked Zig Zags and the Sideways is characterised by a sort of wandering, indeterminate price action.

 

[SOCRATES]

I suggested in post 22 that the definitions provided by Dow, and by extension Sperandeo, were sufficient. If no one has read Dow or Hamilton or Sperandeo, those would be a good place to start.

This is not correct.

An uptrend is characterised by higher lows sequentially followed by higher highs then higher lows and then higher highs.

A downtrend is characterised by lower highs followed sequentially by lower lows and lower highs and lower lows.

Both conditions are apt to continue until the sequences as described cease to apply, when the direction of the trend, for whatever reason, is exhausted.

 

[SOCRATES]

There is no need to go round the houses with this. The above definition I have given is perfectly clear. That is all.

 

[wwatson1]

"The purpose of this thread then is to focus on the process of finding, defining and testing a setup."

There are many sites like www.stockconsultant.com that will find and define a setup for you, You can then test the profitability yourself in realtime or end of day.

Does this answer your question? If not why not?

 

[timsk]

There are many sites like www.stockconsultant.com that will find and define a setup for you, You can then test the profitability yourself in realtime or end of day.
Does this answer your question? If not why not?

wwatson1,
Thanks for the link, I'll check it out later. However, no matter how good the site is, it won't help an aspiring trader to understand him/herself, or to define their understanding of everyday terms like 'trend' and 'retracement' in a way that is meaningful to them. The handful of posts preceding yours demonstrate this, as two very experienced and respected traders clearly have different views about trend. To use a cooking analogy - if I want a loaf of bread I can go to a baker and there are lots to choose from. However, bakers aren't much use to me if I want to learn how to make bread. What we're trying to do here is to make bread - albeit a small, simple basic loaf - nothing complicated. I hope that goes some way to explain where the thread is coming from and where it's trying to get to.

Dbp,
Had SOCRATES not provided the simple definition of trend that he has, I was going to ask you to do the same based on your understanding of Dow theory. It's not practicable to put the thread on hold while everyone goes off and gets their books just to find one definition! I realise that these 'one size fits all' definitions are too crude and imprecise for your liking, but the thread has to pander to the lowest common denominator which, while I'm around, is pretty low.
Tim.

 

[wwatson1]

Riddling tounge twister

Good luck understanding yourself, because I don't understand you

 

[Salty Gibbon]

If I am not mistaken Mr Watson, you are a person who prefers simplicity and clarity in all things and I am of the humble opinion that these preferences are the preserve of the truly clever person.

There is a danger in all things to delve too deeply and to ultimately get lost in the quagmire of detail.

The question of set-ups reminds me of a discussion on " Edge" that I was reading some time ago. It seemed to me then that "edge" meant different things to different people and such is probably the case with "set-ups".

In my view it is imperative that simplicity be maintained as far as possible in all things, because the truth in most things is ultimately simple.

This thread has the potential to be a superb thread and I am reading it avidly but please Tim, don't let it get bogged down in the minutiae of unnecessary detail.

I liked the earlier practical example shown by Grey 1. Would it not be a good idea to concentrate more on examples like this rather than get lost in discussions on theory etc ?

 

[SOCRATES]

Salty, you are right in saying an edge means different things to different people.

There are three categories of edges, not one only that gets discussed in a sort of wooly manner.

First of all there is the mechanical edge, or an edge at a mechanical level, a beginner's edge and for the more advanced but still at a mechanical level nonetheless, and that's alright.

Then there is a huge gap, and the next time we encounter an edge it is at a very high level of expertise.At his level an edge is something very different, because it is no longer mechanical, but mostly intuitive.

There is a third and further refinement.

A true edge is that advantage that an expert specialising in a particular niche has got. It is not only intuitive but additionally specialised.

The pupose of my disscussions in the past in regard to this topic was to ascertain for myself as to who inhabited which universe.

Kind Regards.

 

[Salty Gibbon]

Sorry Soc, I think you are missing my point. I don't want to enter a discussion on "edge" here because it is off-topic unless you directly relate it to set-ups.

I was just entering a request to keep things practical and as simple as possible before we get lost in theoretical detail.

I believe the thread would be more effective then. That's all really.

 

[sulong]

but the thread has to pander to the lowest common denominator which, while I'm around, is pretty low.
Tim.

When the bread recipe calls for 1cup of "luke" warm water, us denominators need to ask ourselves...whats the temperature of a luke?

 

[Mr. Charts]

........that of Cool Hand Luke

 

[charliechan]

Sorry Soc, I think you are missing my point. I don't want to enter a discussion on "edge" here because it is off-topic unless you directly relate it to set-ups.

I was just entering a request to keep things practical and as simple as possible before we get lost in theoretical detail.

I believe the thread would be more effective then. That's all really.

i believe socrates post was to the point in addressing this.

his first example of an edge ( a mechanical entry with a scientific theory, or expected result a-la tharp - which can be back tested etc) for the beginner is what most seem to want to focus on here.

this is fine.

timsk also pointed out that he only wanted to hear from novice and intermediate traders who will be at this level.

seeing as grey1 has given such an example, and suggested people research this set up, and post their results, why has no one done so? after all, it ticks all the boxes - it is concrete in definition, it can be tested, you can stick your own set of trade management ideas around it, it is easy to spot, and it is at newbie level.

(and before some smart alec asks why i dont take the initiative, it is because i have no need to, so it wouldnot be efficient use of my time)

could it be that everyone wants to sit round and discuss the deeper philosophies of 'set up' rather than go out there and and least paper trade this set up and figure it out for them selves, or is everyone expecting someone else to do the work for them??

i would advise all the newbies to follow grey1's suggestion at this point. first things first - you may learn something, and it may provide the level 1 edge that socrates talks about. (yes this is relevant, because the purpose of finding a set up, testing etc is to discover a simple edge - we must know where we want to go before we get there)

 

[SOCRATES]

Sorry Soc, I think you are missing my point. I don't want to enter a discussion on "edge" here because it is off-topic unless you directly relate it to set-ups.

I was just entering a request to keep things practical and as simple as possible before we get lost in theoretical detail.

I believe the thread would be more effective then. That's all really.

Salty, the recognition of set ups is in itself the precursor to acquiring a mechanical edge, and that is why it is relevant. Otherwise an inability to recognise set ups is akin to gambling.
That's it, I now remain silent on the matter.

 

[Salty Gibbon]

Anything you say Soc is of value, and Charlie Chan too for that matter.
Have a good day.

 

[timsk]

seeing as grey1 has given such an example, and suggested people research this set up, and post their results, why has no one done so? after all, it ticks all the boxes - it is concrete in definition, it can be tested, you can stick your own set of trade management ideas around it, it is easy to spot, and it is at newbie level.

CC,
Grey1's example is fine but . . .
the purpose of the thread is to go back a stage. In other words, what was the process that he (Grey1) went through to arrive at this setup (assuming it's his). If traders have the ability to find, define and test their own setups, then they won't be dependant upon the generosity of Grey1 and others to provide 'ready made' setups for them. This was the point I was trying to convey with the bread making analogy.
Tim.

 

[barjon]

Here's a chart that'll maybe help discussion of definitions.

1. breakout - price breaking through tested s/r levels. In this case the October break through the red resistance line, which enables the earlier action from April to be regarded as the start of an uptrend and a trend line drawn in.

2. trend - a series of higher major lows (termed swing lows for me) and higher major highs. Can be thought of as rising support lines (blue lines)

3. retracement - a temporary correction to the trend. In the example chart the pullback from each major high might be a retracement or the start of a reversal. In hinsight there are clear retracements on the chart as the corrections stop and the trend continues to make new highs. In the white circle though we don't know yet whether the correction from the high was a retracement or the start of a reversal (or the start of a flat range). It's looking like a retracement but this will only be confirmed if it rises to new highs (by which time it'll be too late to trade it :cheesy: ) and the last three bar rise could be a retracement of the first leg of a possible new downtrend.

4. reversal - a change in trend signalled by a break through the last major low (high) and/or through the trendline. Still only potential at this stage and requires confirmation by a subsequent failure to make new highs (lows)

Others may see things differently.

jon

 

[charliechan]

seeing as grey1 has given such an example, and suggested people research this set up, and post their results, why has no one done so? after all, it ticks all the boxes - it is concrete in definition, it can be tested, you can stick your own set of trade management ideas around it, it is easy to spot, and it is at newbie level.
QUOTE]

CC,
Grey1's example is fine but . . .
the purpose of the thread is to go back a stage. In other words, what was the process that he (Grey1) went through to arrive at this setup (assuming it's his). If traders have the ability to find, define and test their own setups, then they won't be dependant upon the generosity of Grey1 and others to provide 'ready made' setups for them. This was the point I was trying to convey with the bread making analogy.
Tim.

well, the process is quite simple.

1/ look at a chart (i hope you dont need to open another thread on this one)
2/ look for the sort of moves you want to capture
3/ what started this move?
4/ does this SET UP lead to similar moves. repeat until positive result
5/ problem solved.

if you cant be bothered with this even, then do as dbp says.

its not that hard, but like socrates, im offski.

we shouldnt have to tell you how to get dressed in the morning.

 

[Salty Gibbon]

well, the process is quite simple.

1/ look at a chart (i hope you dont need to open another thread on this one)
2/ look for the sort of moves you want to capture
3/ what started this move?
4/ does this SET UP lead to similar moves. repeat until positive result
5/ problem solved.

Thank you Charlie Chan.

This is the simplicity and clarity I referred to in my post # 47 and is essentially my way of doing things.

No need to get involved in quasi intellectual debate.

Just bloody do it.

BTW, on a grammatical note, does anyone have any views on whether or not there should be a hyphen between "set" and "up". Should provide enough debate for a couple of pages. :cheesy:

 

[Mr. Charts]

Hyphenated in my opinion.
"Set up" seems to me to be an adjectival phrase, whereas "set-up" is a noun and is in accordance with the meaning herein discussed.
Of course, the reversal of such is an "upset" as exemplified by the amazingly consistent advice given on a certain sporting thread..............
Speaking of "baking", great moves on PNRA (a baker) this afternoon, producing lots of dough ;-)
Richard

 

[Salty Gibbon]

Yes Richard, I agree that the hyphen should be there.

And of course, an upset is what occurs when your set-up fails to work for you and is also what causes you to upset your trading desk and put a bullet through your trading screen in one's ensuing tantrum fit.

Total upset caused by a misfiring set-up.