Strategy development

[tune]

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.

My apologies. I did not mean a separate ORB strategy, I meant the break of the opening range (15/20 or 30 minutes) as stated in the introduction on your KIS thread. I am trying to get a clean handle on the first part. Do I just stick to the 30 min bar? Or use the first 15/20 mins or what? Does two points either way still fit the bill? How does this work with opening gaps? This is the headway I am trying make.

I will put these things on the the back burner and concentrate on the retracement strategy.

I realise that I am somewhat restricted without software and data but as yet I have no idea what to go for. One feature that would appeal is a program that can play days of the NQ like mini movies. Speeded up a bit of course. No doubt there are many great products but I am no by means informed enough to hand over any money. And besides, we have not got broadband here yet. My phone company assures me that it will arrive in February. We'll see.

tune

 

[dbphoenix]

If you're referring to the thread on ET, that's very old news, a different market, twice the range on the minis, and a great deal more volatility. I haven't traded that in ages.

As for data, go with daily charts if you don't have access to anything else. The principles are the same.

 

[JumpOff]

OK - Basic Question here..re: nasdaq 100 index.
On Dec 3rd, (about two weeks ago) we were at 1631.9 . Today we poked 1633.0 for a few minutes. Is a one point gain in 10 days significant? Are we still in the resistance zone? How much of a move above 1633.0 would we need to see in order to start looking for a break out? This is not rhetorical. The price sagged back down. (have I mentioned that I often don't know what the h**l I'm talking about? )

The reason I ask, is because to me, the looong term trend is giving signals of a slow down (broke the trendline to the down side and bumping against resistance now) and we had quite a bit of volume today, and I didn't see the price go breezing up to 1640.......
The long term chart I'm posting doesn't quite show the high of this day (I haven't figured that out yet - it won't show until the end of today), but perhaps if you are following the naz, you'll understand what I am asking. The Intraday chart may be useful for the discussion so I have included it also.

Well I know this is Sulong's thread and he started by asking about strategies for BO's. But what if it isn't a BO at all?

I have to leave for a minute. Watch this baby make a liar out of me and zoom right up there.
Thanks,
JO

 

[tune]

OK - Basic Question here..re: nasdaq 100 index.
On Dec 3rd, (about two weeks ago) we were at 1631.9 . Today we poked 1633.0 for a few minutes. Is a one point gain in 10 days significant? Are we still in the resistance zone? How much of a move above 1633.0 would we need to see in order to start looking for a break out? T

Is a one point pierce important? You are asking the same questions as I am. My current thinking is that it would be very important if you are up there trading on a one minute candle, but if you are looking at a 5+ minute line chart, for the bigger picture, it did not even happen.

Are we still in the resistance zone? Do you mean have we broken the R from 12/3?

To my way of looking at it R was tested and it held. Using a 60 minute candle, the 15:00 spinning top with the long legs opened and closed right on R. It was the highest volume of the day. It was quite an amazing sight on the 5 minute candle. All those dojis in a line.

How much of a move above 1633.0 would we need to see in order to start looking for a break out?
I'm still working on that one.

tune

 

[contrakt]

Assessing the potential of a BO

:?: [To my way of looking at it R was tested and it held. Using a 60 minute candle, the 15:00 spinning top with the long legs opened and closed right on R. It was the highest volume of the day. It was quite an amazing sight on the 5 minute candle. All those dojis in a line.

How much of a move above 1633.0 would we need to see in order to start looking for a break out?
I'm still working on that one.

tune[/QUOTE]

Assessing the potential of a BO:
1.a brake and close above R on 2 (or 3) different time frames;
2. on smaller time frame a higher low above R (with Volume dry-up);
3. on smaller time frame Volume support and candle body expand in the direction of BO;
4. at least 1 relevant other index moves in sync with BO.

feedback appreciated :?:

 

[JumpOff]

Assessing the potential of a BO:
1.a brake and close above R on 2 (or 3) different time frames;
2. on smaller time frame a higher low above R (with Volume dry-up);
3. on smaller time frame Volume support and candle body expand in the direction of BO;
4. at least 1 relevant other index moves in sync with BO.

feedback appreciated :?:

Re: #1 and #2, I look for the confirmation on the original larger time frame. Then I switch down to a smaller time frame for my entry. I might add a #1b: when the price ascends through resistance (usuallly with lengthening bars or candles) there is usually increasing volume.

JO

 

[dbphoenix]

Assessing the potential of a BO:
1.a break and close above R on 2 (or 3) different time frames;
2. on smaller time frame a higher low above R (with Volume dry-up);
3. on smaller time frame Volume support and candle body expand in the direction of BO;
4. at least 1 relevant other index moves in sync with BO.

feedback appreciated :?:

Very nice. You're moving toward something that can actually be tested.

 

[tune]

My apologies if this is slightly off topic (or boring) but I have been tackling this puzzle for some time now and would like to put my reply back where the question came from.

Quote from Db. Post #237

"All other considerations flow from the ability (and the willingness) to distinguish between a retracement and a reversal. If one hasn't done that, then he's going to be swimming with ankle weights. In a heavy robe. Tied to the pier."

The above statement has been cause of great concern. Drowning is not what I had in mind. Distinguishing a reversal from a retracement sounds simple but it has taken me 12 days so far and I still don't know for sure if I have settled it.

This one also concerns me.

#273 No matter how one tries to get away from it, he still comes back to distinguishing between a reversal 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.

Defining S/R? I'm OK with. Defining trend? Also OK . Defining a breakout? Working on that. Distinguishing between a reversal and a retracement? I will try that one now.

A retracement and a reversal, in isolation, are exactly the same thing.

The difference between them is context.

A reversal is just a price that changes from going up to going down or from going down to going up, and it can occur anywhere at anytime. A retracement, however, even though it is a reversing of price, can only occur after breakouts and within trends. Retracements are integral to break outs and trends. They do not exist outside of break outs and trends, and break outs and trends can not exist without retracements. The one makes the other.

If a reversing price does not help continue the structured move that is a part of, how can it be considered a retracement? It has to be part of something that has the ability to retrace if is to be something that does retrace.

Creating a retracement set-up that can tested is the object of all this. In order know a trade-able retracement when I see one it is necessary to define a retracement within the context of its' parent structure.

Things that I would look for when trying to define retracement.

Is the potential retracement finding S/R at reaction highs/lows and or a trendline?
Is it finding S/R at earlier S/R?
Are the bars narrower than the rally or breakout bars that preceded it?
Can these bars close in the upper half of their ranges?
Is the volume contracting relative to the rally or breakout bars?
Has there been a shakeout within the potential retracement?
Has the potential retracement been going on for too long?

In essence. What sort of a potential retracement is it? Could I trade it if I saw it?

All retracements are a test of previous support or resistance. A successful test is what makes the possible retracement an actual retracement.

All comments gratefully received.

tune

 

[JumpOff]

.......In order know a trade-able retracement when I see one it is necessary to define a retracement within the context of its' parent structure.

Things that I would look for when trying to define retracement.

Is the potential retracement finding S/R at reaction highs/lows and or a trendline?
Is it finding S/R at earlier S/R?
Are the bars narrower than the rally or breakout bars that preceded it?
Can these bars close in the upper half of their ranges?
Is the volume contracting relative to the rally or breakout bars?
Has there been a shakeout within the potential retracement?
Has the potential retracement been going on for too long?

In essence. What sort of a potential retracement is it? Could I trade it if I saw it?

All retracements are a test of previous support or resistance. A successful test is what makes the possible retracement an actual retracement.

All comments gratefully received.

tune

Now that whole post above is what you call 'doing the work'. This is inspiring! :

In essence. What sort of a potential retracement is it? Could I trade it if I saw it?

Now we come to the heart of the matter. If I am a long term trader (this is a weekly forex chart):

If I have confirmed that there has been a reversal (or a BO), and I have a position working that is with the trend ( say that I entered the chart below, Long at the yellow dot), I have several choices:

1. Do nothing until the trend ends with a reversal.
2. Get out near the beginning of a retracement that might be large.
   and re-enter after the bottom of the retracement.
3. Reverse my position when I confirm signals for a strong retracement,
   and trade against the trend until after the bottom of the retracement.

Some traders prefer the first option - its simple to understand, but perhaps hardest for new traders to follow as it requires discipline to just sit on your hands while you watch your 'unrealized P&L' rise and sink with each wave.

The second and third option require the trader to make an assessment - how large is this retracement likely to be? That depends on amplitude of the waves within the trend. In the chart below, the grey dots are less likely to be large retracments - the price was not making higher highs. (The fact that they may be the forerunner of a reversal or channel is a matter to be discussed elsewhere). The red dots come after strong movement , and achieved higher highs. The trader could reasonably ask, if the price retraced halfway back to the last low, would that be worth action 2 or 3?

But what about the pink dot? It came after strong movement and was at a higher high. - Unless your entries and exits are perfect - that is the risk, if you get out at the pink dot, will you be able to get in near the green dot?

If you zoom in far enough (tick, 1, and 5 minute charts), you'll see that some retracements are completely engulfed by the cost of eixting and re-entering the trade. This can also happen if the trend angle isn't very steep.

A retracement and a reversal, in isolation, are exactly the same thing.

The difference between them is context.

I agree. If you were to zoom in to a smaller timeframe you would see the obvious; the beginning and end of each retracement within a trend starts with a reversal.

I'm sure this doesn't always happen at former points of S & R, because sometimes the chart is making completely new highs and lows.

===== ==== soapbox on ========
If you are lurking on the sidelines, it is time for you to start typing. I learned that part about the difference between the gray and red dots while I was composing this. It happened as a result of trying to pick a good chart and to figure out why some retracements were bigger than others. I've looked at thousands of charts and never noticed that until I started diagramming it to post here..
==========/soapbox off================

Sulong, - we seem to have hijacked your BO strategy thread - do you want us to take this elsewhere?

JO

 

[barjon]

jump off

If you used a 3 bar swing method (3 lower lows) to establish swing/retracement lows you'd have entered 9 bars earlier than your yellow dot but come perilously close to being stopped out (unless you were more conservative and waited for a close above the high of the swing low bar - when you'd have entered 3 bars earlier). You'd have ignored your pink and greys other than noting them as minor swing lows (to inform exit(s)). You'd have added after the high of the swing low was breached after your red dots (you'd have had to deal with a false signal after the first one and would probably have been stopped out of this second position - although re-entry was available). By the end you would still be running 2 positions (or 3 if you had re-entered) - unless you had taken profits on a targeted amount basis - and at no point had swing lows or minor swing lows been breached to cause exit.

You would not have sought to trade the retracements.

Mechanical, I know, but just a different perspective.

good trading

jon

 

[sulong]

Sulong, - we seem to have hijacked your BO strategy thread - do you want us to take this elsewhere?

JO

Nice work JO.

"do you want us to take this elsewhere?"
It depends what your intent is. If you intend to follow through, using this chart as your example to write down the the exact trade (BO or PB or Rev) and then all the conditions that need to happen to give you the signal to enter, then it's on topic. And also very welcome.

If you intend to just discuss all the different "potential" trades you see, and leave it at that, then we may need a new thread for that.

 

[dbphoenix]

A retracement and a reversal, in isolation, are exactly the same thing.

tune

This is inconsistent with the list of characteristics you've provided of "things to look for".

Also, not all rets are tests of S/R, at least not S/R that are detectable in real time.

 

[JumpOff]

jump off

If you used a 3 bar swing method (3 lower lows) to establish swing/retracement lows you'd have entered 9 bars earlier than your yellow dot but come perilously close to being stopped out (unless you were more conservative and waited for a close above the high of the swing low bar - when you'd have entered 3 bars earlier). You'd have ignored your pink and greys other than noting them as minor swing lows (to inform exit(s)). You'd have added after the high of the swing low was breached after your red dots (you'd have had to deal with a false signal after the first one and would probably have been stopped out of this second position - although re-entry was available). By the end you would still be running 2 positions (or 3 if you had re-entered) - unless you had taken profits on a targeted amount basis - and at no point had swing lows or minor swing lows been breached to cause exit.

You would not have sought to trade the retracements.

Mechanical, I know, but just a different perspective.

good trading

jon

Barjon, I am not familiar with the definition of a "3 bar swing method." Is this what you use to enter after a BO or reversal? If you look at the first chart that sulong posted on the first message of this thread, would the 3 bar swing method have caused you to enter in the small circle inside the oval?
JO

 

[barjon]

Barjon, I am not familiar with the definition of a "3 bar swing method." Is this what you use to enter after a BO or reversal? If you look at the first chart that sulong posted on the first message of this thread, would the 3 bar swing method have caused you to enter in the small circle inside the oval?
JO

JO

Is this what you use to enter after a BO or reversal?

Not as such, although the picture often looks similar. I identify a change of intermediate trend to up (down) when the last swing high (low) of the previous down (up) trend is taken out. I then seek to enter on the first 3 bar reaction. Similar if the previous trend re-asserts itself by breaking out from a period of congestion. Sulong is talking of entering on the first pullback (which might extend to 3 bars?). I was just struck by your chart and how 3 bar fared.

If you look at the first chart that sulong posted on the first message of this thread, would the 3 bar swing method have caused you to enter in the small circle inside the oval?

not sure (don't have a detailed chart in front of me) but I doubt it.



good trading

jon

 

[tune]

Also, not all rets are tests of S/R, at least not S/R that are detectable in real time.

I feel pretty stupid for saying that they were. Price could break away into an area far from any S or R and still retrace. And what about uncharted territory? There will be no previous S or R there whatsoever.

tune

 

[dbphoenix]

I feel pretty stupid for saying that they were. Price could break away into an area far from any S or R and still retrace. And what about uncharted territory? There will be no previous S or R there whatsoever.

tune

That's where tactics come into it, but unless you have the preliminaries nailed, it's easy to get lost in counting bars and starting your stopwatch and measuring distances and calculating percentages and lots of other things that have nothing to do with whether or not a retracement is successful, i.e., leads to a continuation.

Never lose sight of the fact that a retracement is an opportunity for those who missed the breakout or elected not to take it to participate in the move. If those traders do not jump on the opportunity to take advantage of that retracement, sirens should go off. However, you should have some reason to suppose that they will, either because of the nature of the base, the nature of the breakout, or some other relevant characteristic of the event.

A large part of how you proceed will depend on whether or not you want to be purely mechanistic about this or to allow for some degree of discretion, such as regards, for example, the general market environment that day. I don't care for the mechanical approach, but where you find success will more likely depend on what is more compatible with your approach to the markets than it will on any objectively measurable superiority of one method over another.

 

[contrakt]

That's where tactics come into it, but unless you have the preliminaries nailed, it's easy to get lost in counting bars and starting your stopwatch and measuring distances and calculating percentages and lots of other things that have nothing to do with whether or not a retracement is successful, i.e., leads to a continuation.

Never lose sight of the fact that a retracement is an opportunity for those who missed the breakout or elected not to take it to participate in the move. If those traders do not jump on the opportunity to take advantage of that retracement, sirens should go off. However, you should have some reason to suppose that they will, either because of the nature of the base, the nature of the breakout, or some other relevant characteristic of the event.

A large part of how you proceed will depend on whether or not you want to be purely mechanistic about this or to allow for some degree of discretion, such as regards, for example, the general market environment that day. I don't care for the mechanical approach, but where you find success will more likely depend on what is more compatible with your approach to the markets than it will on any objectively measurable superiority of one method over another.

Quote from Socrates:

The true flaw in backtesting is thinking that there are a myriad of systems. In fact there are only two: reversal and continuation.

2005: is your plan serious, specific, significant, flexible and save enough to trade todays continuations and reversals effectively?

 

[erierambler]

2005: is your plan serious, specific, significant, flexible and save enough to trade todays continuations and reversals effectively?

It darn well will be.........

Hi Ho, Hi Ho, it's off to work we go...........


erie

 

[dbphoenix]

2005: is your plan serious, specific, significant, flexible and save enough to trade todays continuations and reversals effectively?

I should point out that the quote which you attribute to Socrates is not the Socrates that t2wers are familiar with. I have no idea who the Socrates you're quoting is, and while I also have no idea what the real Socrates thinks are the primary trading strategies, they are, in the context of what I teach, breakouts, retracements, and reversals. Since sulong and I are pretty much on the same page in this regard, I suggest that consistency will aid clarity.

And as long as I'm here , I'd like to point out the avatar I created and posted under my name, designed to commemorate the release of the final chapter of Jackson's vision of Tolkien's monumental work. Here's to you, Peter and John Ronald.

Now all I have to wait for is the seventh installment of Harry Potter.

 

[contrakt]

Framework for the study of rational price discovery

I
That's where tactics come into it, but unless you have the preliminaries nailed, it's easy to get lost in counting bars and starting your stopwatch and measuring distances and calculating percentages and lots of other things that have nothing to do with whether or not a retracement is successful, i.e., leads to a continuation.

Maybe this framework might others.

:idea: behind continuation /reversal framework thinking:

So in potential a successful retracement and the succefull continuation of a BO are of the same "continuation" category.

The two other categories of rational price discovery to keep in mind are:
-the family of nasty small moves as "chop, sideways action, etc.".
-and last but not least the "reversal" category;