Strategy development

[Quercus]

Yes, and very much appreciated all the work, I will no doubt read it again now!
I do look at volume, and use it as a guide to the price action, but like others I am very much an apprentice in the art of volume interpretation.
Thanks to others too, such as sulong and porks.
Q

 

[dbphoenix]

Yes, and very much appreciated all the work, I will no doubt read it again now!
I do look at volume, and use it as a guide to the price action, but like others I am very much an apprentice in the art of volume interpretation.
Thanks to others too, such as sulong and porks.
Q

I wasn't referring to volume interpretation per se but rather the section on defining a setup and developing tactics.

But since you know what I'm talking about, don't worry about nailing down rules with regard to the example you posted. If this is a setup you're happy with and an example of what you're looking for, then find 20 examples of it in July's and August's charts (if you can find 20 in just July, that's fine).

 

[Quercus]

Cheers db - this is what I spent yesterday doing, and I'm getting there. My own charts are a bit "gappy", due to holidays/pc problems/data issues. However I am getting there - I identified 30 in the Sep/Oct charts, and am now looking at that data. MAE so far is 3.5, MFE was 13. Average Profit was 5.75. I am a little concerned that I haven't tied down the prior trend rules as such. There are many days without entries, and the profit figures are extremes reached before a breach of a previous high/low. The exit needs to be managed either as a trailing type stop, or a set target based on the average possibly. Not too sure yet, and this is very much coming from a novice!
Q

 

[dbphoenix]

Cheers db - this is what I spent yesterday doing, and I'm getting there. My own charts are a bit "gappy", due to holidays/pc problems/data issues. However I am getting there - I identified 30 in the Sep/Oct charts, and am now looking at that data. MAE so far is 3.5, MFE was 13. Average Profit was 5.75. I am a little concerned that I haven't tied down the prior trend rules as such. There are many days without entries, and the profit figures are extremes reached before a breach of a previous high/low. The exit needs to be managed either as a trailing type stop, or a set target based on the average possibly. Not too sure yet, and this is very much coming from a novice!
Q

Don't worry about MAE, MFE, profit targets, stops, entries, exits. You're worrying about making money rather than understanding the setup.

First look at these 30 successful retracement setups and determine what it is that they all have in common, i.e., what it is that makes them successful (success being defined as moving in the desired direction).

Sulong, if this is not what you have in mind for the thread, I'll be happy to continue it somewhere else.

 

[Quercus]

Ok db - I'll get on to that. I guess what I'm looking for is something that I can recognise as an indication of the probability of success. Then and only then should I be looking for the mathematical viability of the strategy. Does this mean looking for the degree of pullback in comparison to the prior trend or perhaps the type of second pullback bar which works best, or whether they work best if only taken after a b/o from congestion/rectangles?
Always running before I can walk!
Q
PS - I'm also happy to take this elsewhere sulong if you like?

 

[sulong]

Sulong, if this is not what you have in mind for the thread, I'll be happy to continue it somewhere else.

No!, this is all good.

The goal is to learn, and actually develop a workable strategy.

I hope others will take this opportunity to do their work, along with Q.

 

[dbphoenix]

Ok db - I'll get on to that. I guess what I'm looking for is something that I can recognise as an indication of the probability of success. Then and only then should I be looking for the mathematical viability of the strategy. Does this mean looking for the degree of pullback in comparison to the prior trend or perhaps the type of second pullback bar which works best, or whether they work best if only taken after a b/o from congestion/rectangles?

There's no stigma to taking something one step at a time. This is how science operates. Just ask any competent researcher.

Therefore, the phenomena you've listed are fine for a starting point: what is the extent of the retracement? in comparison to what? is there any pattern to the number of bars? to length of time? is there any consistency as to the prerequisites, i.e., the source of the S/R, the width/length of the base, if any? And so on.

Just keep studying them until the bars swim in front of your eyes. Then stop and come back to them another time. The answers are right there in front of you. All you have to do is ask the right questions. But this is the difference between a trader and a Gimmee.

 

[Quercus]

Thanks db - back to the charting board!
Q

 

[dbphoenix]

Thanks db - back to the charting board!
Q

Incidentally, I'll assume that you're printing these charts and laying them all out on the floor next to each other . . .

 

[Quercus]

I tend to draw the patterns in longhand, but if you think printing them out separately is a better idea let me know!
Spent long hours charting yesterday.
Don't feel any further forward as yet on the pullback setup, but began to see many repeated "reversal" patterns at key levels of support and resistance. Perhaps this is what is meant when you say that it's all in front of me waiting to be discovered!?
Will report back as developments occur, in the meantime have a great Thanksgiving.
Cheers
Q

 

[erierambler]

Homework- reversal

I haven't forgotten to do my homework, but this can be frustrating. I could not get a repetitive set up for a retracement from opening price but did run across a reversal setup that I liked. This buy point is after a decline. Price must exceed the long downbar, then retrace but not lower than the large downbar where the stop is entered.This means that the selling is drying up. My steps aren't in stone yet but it is from this chart I would like to derive some rules.

erie

 

[barjon]

sulong

I wonder if we might move to what some may consider the more difficult part of a strategy which you touched on in your first post ie: conditions for exit or managing the trade.

I suppose the classic dilemma is whether you let sleeping dogs lie - ie: having entered and set your stop just leave it open until you're stopped out or your target is reached (if you have one) - which runs the risk making an avoidable loss or watching profits evaporate. Or whether you actively manage the trade and exit if the price action looks wrong - which runs the risk of being spooked out too early and leaving considerable profit on the table.

Using my open trade in AUN as an example. Since the breakout the price has been fighting the market - it is up 2% whilst the market (ftse) is down 1% and that is a battle it'll likely lose if the market continues weak. Some would say that the ftse is on the cusp for a significant break either way. If the market appears to break south, you could choose to exit AUN at around breakeven (if it was still there!) despite that it was still above the natural stop loss level.

Alternatively, you could just let the stop loss stand and take whatever comes.

Once again, I don't post to get comfort blanket comments about my own decisions but to use the example merely to stimulate discussion.

Good trading

jon

 

[TheBramble]

barjon - AUN isn't exactly fighting the market. The FTSE has been on a slight up trend last week (when you went into the trade) and maybe formed a double-top at around 4800 on Friday.

You're right, if the FTSE does start to break down then it would be worth reviewing the rationale which took you into a long AUN position in the first place.

A trailing stop is generally only one of a number of factors you'll use to establish the 'worthiness' of an open trade. I imagine other traders will be looking for the Stochastic to be slipping down below the 80 band, of a bearish divergence on the MACD (or of course, any number of MA x-overs).

With regard to the founding post of this thread, one of the most important factors which is probably jumping out at you right now is that there is a 52wk HIGH of 722.50 which has not been breached and doesn't appear to have the 'wind' to do so.

Even if none of the technical indicators are showing a stop or reverse, general 'fatigue' or market sentiment not being in favour of continuing a trade is something which is 'felt' rather than empirically determined.

The last comment may not be particularly helpful, but you did say you wanted to stimulate discussion.

 

[sulong]

sulong

I wonder if we might move to what some may consider the more difficult part of a strategy which you touched on in your first post ie: conditions for exit or managing the trade.

I suppose the classic dilemma is whether you let sleeping dogs lie - ie: having entered and set your stop just leave it open until you're stopped out or your target is reached (if you have one) - which runs the risk making an avoidable loss or watching profits evaporate. Or whether you actively manage the trade and exit if the price action looks wrong - which runs the risk of being spooked out too early and leaving considerable profit on the table.

For me, my first condition for an exit is "I screwed up with my entry", if I did, I exit right there.

If I'm still in after the first condition, the second would be "did the buy/sell pressure materialise"?
For me, this should happen by the close of the first bar following my entry bar. If not, I exit.
If I'm still in, I know that for me, the price will very likely come back to test my entry price, but by then, The price ought not to test my original stop point., so my stop is moved just outside my entry point.

If I'm still in after all this, I manage my trade by watching the test of higher/highs - lower/lows, until my targets are reached.

As long as we have a trade management plan, and we follow that plan, there is no risk of being "spooked out" too early.

 

[barjon]

tony,

yes, but I was taking it from the breakout point rather than entry point.

sulong

yes, I do something similar. ( btw how do you establish your targets when the stock has broken into uncharted territory - that always causes me some problem)

BUT, the course of true love rarely runs smooth. Many's the time negative price action has proved temporary, but enough to trigger a trailing stop (or even a breakeven stop), before sailing on to great things with me absent. I do have re-entry criteria which helps a bit.

For me, the entry is relatively easy since it's just a question of pulling the trigger when your criteria are met and the price arrives at your setup entry point. It's managing the trade that I find most difficult and I suspect that's because it needs the greater expertise.

good trading

jon

 

[JumpOff]

I haven't forgotten to do my homework, but this can be frustrating. I could not get a repetitive set up for a retracement from opening price but did run across a reversal setup that I liked. This buy point is after a decline. Price must exceed the long downbar, then retrace but not lower than the large downbar where the stop is entered.This means that the selling is drying up. My steps aren't in stone yet but it is from this chart I would like to derive some rules.
erie

Erie, I find it helpful to have my trigger point be the last piece of information on an entry example chart. Here's why - The chart you posted showed confirmation of the buy - and in hindsight - everyone can see that it was correct. When I use examples like that, I find that I wait too long to make my entry, and it also leads to an expectation that the trade is correct. I like to leave the right edge empty on my examples to remind myself that I have to act only on currently available information, and to be prepared for whatever comes next .

JO

 

[sulong]

sulong

( btw how do you establish your targets when the stock has broken into uncharted territory - that always causes me some problem)

jon

I don't trade stocks.
I enter and exit on the same day, most often I'm done with in the first 2 hours of the trading day.
Basically, I base my targets on NQ, on the average daily range. I deduct the range, up to my entry, from the ADR, and then I've got some sort of idea how much more price is likely to go.
There's more to it than that of course, with the contraction and expansion thing, but maybe that's getting off track.

 

[dbphoenix]

For me, the entry is relatively easy since it's just a question of pulling the trigger when your criteria are met and the price arrives at your setup entry point.

Did you define your criteria/setup entry somewhere? I must have missed it.

 

[erierambler]

JO,
Good point I'll keep that in mind.

erie

Erie, I find it helpful to have my trigger point be the last piece of information on an entry example chart. I like to leave the right edge empty on my examples to remind myself that I have to act only on currently available information, and to be prepared for whatever comes next .

JO

 

[erierambler]

Since Sulong has posted his chart with a BO and a ret, I see these more clearly. This is from Nov 17th, 5min, on the ES. I did not take the trade but saved the setup.

erie