Strategy development

[sulong]

Sulong,

There has been a narrow range day again(Fri) on the NQ. Do you want to discuss price/strategy at this particular time?

erie

I'm not sure what there is to discuss. I've pretty much laid out my view on this type of price action already.
Here's a chart with the information I'm looking at, and " if you know what happens" I'll follow the steps I've already outlined in this thread

 

[erierambler]

Very good then, happy trading. I'm following this along.

erie

I'm not sure what there is to discuss. I've pretty much laid out my view on this type of price action already.
Here's a chart with the information I'm looking at, and " if you know what happens" I'll follow the steps I've already outlined in this thread

 

[dbphoenix]

Sulong's chart provides a good example of an issue that has arisen more than once regarding the work I've done with price action and may help explain why some people have so much trouble with this stuff.

As I point out in the testing section of the PVracticum, there are several "keys" or "concepts" or whatever one wants to call them that one must keep in mind in order to succeed with this approach:

Demand/Supply

Price/Volume

Support/Resistance

Trend

Breakouts/Retracements/Reversals

The Law of Demand/Supply is absolute in an auction market. Without it, there is no market. Support/Resistance and Trend are not absolute but are axiomatic with regard to this approach, in other words, one must accept the concept that there are such things as support, resistance and trend when studying this approach, much less attempting to apply it, or else the whole thing unravels. If one believes instead that there are no such things as support and resistance, that there is no such thing as trend, then this is all a waste of time.

Sulong's chart provides one of the best examples of support and resistance I've seen lately (in fact, I saved it yesterday to include in the next pdf since it also includes a springboard and a hinge), and anyone who accepts S/R as axiomatic will ooh and aah; anyone who thinks that S/R is a load will assert that it's all just an anomaly and of no practical and/or applicable use. What is important, though, is not the issue of proof (which is why I chose the term "axiomatic") but of whether or not one can do something with this, i.e., can one find multiple examples of this sort of thing in old charts and find tradeable characteristics with regard to breakouts, reversals, and retracements. If he can't, then none of this is of any use to him whatsoever. That does not mean, however, that it is of no use to anyone. Someone else, e.g., Darvas, might find something very tradeable and find success with it as a result.

Therefore, if one cannot at least keep an open mind with regard to abovementioned axioms when studying these charts, he may as well move on to something else: there is no proof offered here. However, if one can keep that open mind, even though he may not yet be a member of the choir, this chart provides an excellent example (though not the only example by any means) of what to look for.

 

[JumpOff]

What are you trying to accomplish? What are your objectives? 1, 2, 3 . . .

My objective is to learn the answers to the questions below. All of the information below concerns the e-mini S&P and naz futures. You will note that my questions are still very basic. I got started on this path because my uncle thought I'd enjoy trading the forex. (After a little paper trading, I've since decided he did not know what he was talking about). I have only recently begun to cast about for another instrument whose patterns are more regular (ie; the charts look more like the ones used in text books), less volatile, and has a smaller contract size with less leverage. All these questions have to do with writing the 'entries' portion of my trading plan. I have not yet begun to ask specific questions about targets and exits, money mangement, trading hours, etc...

• 
  Noting the areas of support and resistance on a larger chart (60 minutes), find out if the BO and reversal patterns I can easily see on a 5 min chart after the fact can also be spotted in real time as they are developing. Mark the entry in 'real time' and comment why I thought that was the best point to enter. Also mark where I think the stop should go to prove the entry was wrong and the place where I shoud get out (regardless of how wide it is).Throughout each day, I marked S and R as I saw them at the time on the 5 minute chart, and at the end of each day, I marked the support and resistance on the 60 minute chart too, and included my comments about how I thought the first few opening moments of the next day might go - if the current pattern continues..
• After looking at about 50 5min charts on which these patterns have been marked ,go back and look again. Did I pick a good enough entry point after waiting for confirmation? Given the entry points I chose, determine the median size of the stop loss neccessary to stay in the trades that would have made at least 4 points. Are some patterns or times of day so explosive/volatile that I can not trade the minimum contract size without risking more than 2% my account size?
• What is the average daily range for these instruments? Where is the point that I say I will not enter in this direction (even though the setup looks great) because the index has already traveled too far in that direction for the day - making it a low probability trade for me ( I will be getting flat at the end of each day.)
• I've notice that after a large move(50% or more of the normal daily range), the price often moves sideways for a while, chopping up and down and making a wider channel where most of my bad entries are made. When this sideways movement develops , how long does it usually take before the price stops moving sideways and either continues or reverses. Will it improve my odds if I write a rule that says I must wait _x_ minutes after that kind of move before I enter?
• After a good setup with confirmation, how long does it usually take the market to move at least 4 points? Use this information to avoid entries too near the end of the day or a scheduled appointment.
• On average, how many good entries are there per day? If I have had _x_ number of successful or failed entries and I'm up (or down) _x_ number of points, should I quit for the day, even though it is only X:00 a.m.?

Well as you can see I have more questions than beaches have sunburns.
JO

 

[dbphoenix]

I thought you might be doing too much all at the same time, and I was correct: you are trying to do far too much all at the same time.

Forget about multiple bar intervals. Forget about multiple instruments. Forget about most of the rest that you're trying to do. Begin with one instrument, one bar interval, one chart feature, e.g., NQ, 5m, support and resistance. That's all. You have to collect the data, organize the data, then begin developing hypotheses based on what you see. Trying to do all that you're doing will take months and you likely will not know what to do with it all when you're done.

As for S/R, I don't understand what you mean by marking them "throughout the day"; the S/R levels should be determined before the trading day begins, even the night before. What most people think of as intrarange S/R is generally too trivial to result in a high-probability trade.

 

[sulong]

The circled price bars on these two charts, took any possible PB trade from a BO, off the table for me.
At some point, I would like to move along and take a good hard look at possible entries from this kind of price action.
But, so far I don't yet have a way to properly explain the setup and entry in simple rule form.

 

[dbphoenix]

The circled price bars on these two charts, took any possible PB trade from a BO, off the table for me.

Breakout from what?

 

[sulong]

Breakout from what?

From the chart in post #262, which shows the price action from thurs. and fri.
I had primary R at 1520 and S at 1611 from fri. And secondary R at 25 from thurs.(my range)
Early this morn. price broke out of both those levels.

I had "30" as my first possible next R point, which turned out to be very strong.

 

[dbphoenix]

From the chart in post #262, which shows the price action from thurs. and fri.
I had primary R at 1520 and S at 1611 from fri. And secondary R at 25 from thurs.(my range)
Early this morn. price broke out of both those levels.

I had "30" as my first possible next R point, which turned out to be very strong.

However, price didn't "break out" of anything; it started there. Even so, in order to trade a "pullback" from this breakout, you'd have to have a definable trend. With only five points to the next R level, which is considerably stronger than those working up to it, you'd have to define your trend in terms of a very small bar interval. Even then you'd have to use a tight stop due to the proximity of R.

Which takes you back to defining "trend" and "breakout". "Breakout" implies a movement out of a range. If you want more than a couple of points, the range here goes back nearly two weeks. Within that context, there's been no breakout.

 

[tune]

With only five points to the next R level, which is considerably stronger than those working up to it...

I see what you mean. The breakdown on Tuesday was one of the events of the week last week. There must be rakes of people up there just busting to get their money back. Buying towards that does not seem like a good idea.

tune

 

[sulong]

db,
I don't mean to ignore what you said. But your response gave me an idea that I need to work back through my past charts with, to see how many trades an extra condition would have kept me out of.

And the results.
But it'll have to wait until this evening, I'm about out of time for now.

 

[dbphoenix]

I see what you mean. The breakdown on Tuesday was one of the events of the week last week. There must be rakes of people up there just busting to get their money back. Buying towards that does not seem like a good idea.

tune

That depends on what the trader wants, and, yes, we always come back to this. There's no guarantee that the R at 1630 will hold; in fact, price might bust right through it. So do you buy the higher low above 1625 or do you wait for the BO through 1630, if any? And if you do wait, where do you enter? The first pullback above 1630? And how do you know that the "pullback" from 1630 is a reversal rather than an entry opportunity for a continuation?

No matter how one tries to get away from it, he still comes back to distinguishing between a revesal and a retracement, defining S/R, defining trend, defining a breakout. And how he defines all of this will depend in large part on what it is he wants from the market. Introducing trade management may help clarify the issues involved in developing these definitions, but the task can only be postponed, not avoided.

 

[Quercus]

You are so right dbp, and I'm a seasoned "postponer" it would appear.
These personal "definitions" still elude me, despite the desire and effort to identify them!
Q

 

[sulong]

The twist and turns the mind takes from time to time can be amazing.
I don’t know how many of you might have a bit of sailing experience, (not that it matters) but I’m going to talk a little about it.
You see, sailors have a lingo all their own. What a landlubber might call a “rope”, a sailor has list of names for that same substance.
When “rope” is used to hold the vessel together, it’s called “standing rigging”.
When “rope” is used to control the power of the wind, it’s called “running rigging”
When rope is used to adjust the sails, its called “sheets”, i.e. Main sheets, jib sheets, spinnaker sheets, etc
When “rope is used to raise or lower sails, it’s called a”halyard”
When “rope is used to connect your boat to its anchor, its called “rode”
When a length of “rope is used on the boat, or for the boat, but not for the day to day operations of the boat, it’s called “line”

Although all this may be confusing to landlubbers, a sailor quickly learns the lingo, and therefore can sign abroad any boat and communicate efficiently what needs to be done with what and how.
Knots are another thing, but I won’t go into them now except to say they’re similar to “candle patterns”

I don’t know, somehow I see a relationship between a sailor’s lingo and a trader’s lingo.
If a sailor is to be a part of a "crew" he needs to use the accepted lingo. If he is a loner, non of it matters.

Crazy thoughts today....

 

[dbphoenix]

If he is a loner, non of it matters.

But it does. The point of the definition process is not to win arguments but to tell one what to do. If one doesn't know what to do, he is far more likely to do the wrong thing or to do nothing at all.

For example, if and when price hits 1630 and stalls, at what point does one decide that this is a reversal and that he ought to go short? At what point does he decide that it's a retracement and that he ought go long? If he hasn't distinguished between the two, he doesn't know what to do in real time, and by the time he decides, the trade is gone.

 

[tune]

That depends on what the trader wants, and, yes, we always come back to this.

I am entirely happy to come back to this for as long as it takes me. I can tell you what it was that I wanted from the NQ this morning. It is the same as I want every morning. I am working on learning the KIS strategy and I am trying to make some headway with the opening range breakouts. After that I just watch whatever happens, take notes and occasionally papertrade. I don't have any data feed service or historical charts to study so I just do each day on Prophet. Slow I know, but that's what I have for now. Loads to read/reread anyway.

I successfully paper traded that big break on Tuesday and I was very aware of possible resistance at the 29/30 level. Personally, I would not want to buy straight into something of that magnitude even if the ORB was to the upside. If I was to define something, that would be be a rule.

Anyway, those big long tails on the 5 minute pushed into that R at 9:30/35 and made me keep my eyes open for a possible reversal. Obviously S was not that far away but we were at strong R and I am prepared to consider wide scalps. I don't have an exact set-up ready for a situation like this or a probability figure but when price came back up to R and then made a lower high I called a papertrade short. I used a one minute line chart and and a one minute candle and took the break of the 10:22 low. I then closed that short as price entered Fridays R. Now I know that I am just guessing with all this and it's pretty loose stuff with no proper entry and exit rules. But if I am watching it live and I like the look of something is there any harm in papertrading before I have fixed set-up rules? I go over the trade and try to define it all afterwards. I feel it is helping me look hard into where and when. It won't stop me looking into whether or not I should have called it though. Successful or not.

My apologies for having no chart to go with this. I will get that sorted out soon.

tune

 

[TheBramble]

When “rope” is used to hold the vessel together, it’s called “standing rigging”.
When “rope” is used to control the power of the wind, it’s called “running rigging”
When rope is used to adjust the sails, its called “sheets”, i.e. Main sheets, jib sheets, spinnaker sheets, etc
When “rope is used to raise or lower sails, it’s called a”halyard”
When “rope is used to connect your boat to its anchor, its called “rode”

If you're saying ' one man's reversal is another's retracement' - I'd agree.

What to do at any given price level is a function of the timeframe you're trading. Although S/R at different timeframes reinforce, as do trends, the level of granularity at which you play is the ultimate determinator of your 'take' and your action on the price levels.

 

[sulong]

If you're saying ' one man's reversal is another's retracement' - I'd agree.

What to do at any given price level is a function of the timeframe you're trading. Although S/R at different timeframes reinforce, as do trends, the level of granularity at which you play is the ultimate determinator of your 'take' and your action on the price levels.

No, that is not what I was trying to say. (an example)
You see, at the most basic level, all you need for a price retracement is two bars, bar 2 can retrace some or all the price range of bar 1. = the"rope"
When the price trades in a horizontal and consolidated range for 2 days and the next closest S/R is 30 points away and price breaks out and price temporarily slows down and or retraces, that is your "halyard" (pullback)

The point is, If you intend to release your "jib sheet" you better stay away from your "jib halyard".
( you can find "rope" in both of them)
I apologise to you all for going off on a tangent here, it's just that for me I see a relationship as to why the lingo needs to be incorporated into our thoughts.

 

[dbphoenix]

I am working on learning the KIS strategy and I am trying to make some headway with the opening range breakouts.

There's nothing wrong with doing this inductively, though if you're doing all of this in real time, it could take months to gather enough data to make any progress.

But as far as KIS with an ORB strategy, this is almost a contradiction in terms. The ORB looks simple, but the success or failure of it is determined by a number of factors other than the opening range. I suggest you stick with something even simpler, i.e., the retracement strategy, though you can of course do whatever tickles your fancy.

 

[dbphoenix]

I apologise to you all for going off on a tangent here, it's just that for me I see a relationship as to why the lingo needs to be incorporated into our thoughts.

I suggest that it's self-defeating to equate "pullback" with "retracement". As I've explained elsewhere, there are three strategy types: breakouts, reversals, retracements. A retracement is specific and definable, occurring after a breakout (which has its own defining criteria) and within a trend. A "pullback" can mean anything. If one equates the two, I should think it would be next to impossible to collect examples of retracements, much less develop a set of tactics for a retracement strategy.