As you know if you ask 1000 traders what indicators they use you will get 1000 different answers, and that in general duplicating a configuration will not duplicate results: what matters is what changes have occurred in your brain over 1000's of trades and 1000's of hours of trial and error that translates what price & indicators are doing into setups you can use reliably.
That said, After becoming familiar over a couple of years with just about every indicator I could get my hands on, including a number of exotic ones available in the downloads section of this forum, I finally settled on slightly modified versions of 2 well known indicators and 2 moving averages for "momentum", "cycle" and trend as discussed by Barry Burns of Top Dog trading (not an endorsement of his system, just the way it worked out):
- MACD (for "momentum")
- Stochastics (slow, for "cycle")
- 50 SMA (longer term trend)
- 15 EMA (shorter term trend)
In addition to any unmarked support/resistance that price may establish I use the following indicators to suggest Support and Resistance (S/R):
- PriorDayOHLC (yesterday's daily open, high, low and close)
- Pivots (conventional "floor" pivot + 2 support and resistance levels)
- MurreyMath (custom indicator available on this site)
Finally, when range or channel trading I use VolumeProfile to indicate zones of activity (volume itself meaningless for Forex) and RegressionChannel with 3 or 4 standard deviation envelope.
I use 3 charts to gauge "short" (200 tick), "medium" (600 tick) and "long" (1800 tick) term price action. The medium chart is for setups, the short time frame chart for entries and the long term for context and confirmation (e.g., of trend, for trade direction).
I've settled on tick bars over the last while because for me the selected indicators seem to work better if they're processing trading activity (price / trades) than price as a function of time--again, more likely a consequence of my brain wiring than anything else.
Like you, after trying to trade 24/7, then trying to adjust my sleep habits to trade specific sessions (Pacific Rim, Europe, N. America) I finally settled on N. American market hours because I live on the east coast of Canada and my body refuses to adapt to anything else :-/ For me it turns out being well rested is more important than anything else, and it matters far less what price movements may "get away" while I'm asleep than that I'm firing on all cylinders when trying to capture what price movement the market offers during a trading session.
I've attached a screenshot taken just now of the chart setup on a laptop with attached 18" display--don't necessarily like the charts divided between 2 screens but have been trading from the laptop lately while working out a few kinks in the "serious" trading system (desktop with 2 x 27" monitors + occasionally another 24" monitor, not set up to capture images at the moment).
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My strategy is such that I'm almost always in a trade. When I have an entry I stay in the trade until one of three things happens: 1) I get stopped out 2) I hit every target 3) There is a "reverse" signal.
What that means for my winners is they range in profitability... Since I trade standard lots, my minimum profit is about $30 and my strategy maximum profit is $2,000. I don't often have 100 pip moves (100 pips is my last target). My 40 pip target gets hit most often. If I hit 40 pips I collect $400 plus whatever I get on the reverse signal. Every stop out is -$1,200: 3 lots x 40 pips.
Right now I'm risking slightly over 4 percent every trade. I try to keep it around 2 percent though.
I'm amazed at how low your targets are... 1/10 pip! I wasn't aware one could even do that (guess I'm even more naive than I thought).
Since I've never really dealt with scalping I'm unsure of where to even start developing a profitable strategy. My limited knowledge of code is a huge setback in backtesting, so backtesting different ideas and strategies is a very long and difficult road. Do you have any suggestions for a beginner like me?
I appreciate your help!
Thank you! You're very informative!
I have a couple of questions:
1) In your setup, how often do you get an entry signal? Seems like they'd be fairly far and in between.
2) Do you trade open to close in the N. American markets?
3) Do you have any suggestions for a beginner like me? I like the idea of using three different lengths of indicators to help confirm price movement. My biggest limitation is my inability to backtest easily.
Thank you so much for your help!
Last edited by Arich; September 26th, 2012 at 11:37 AM.
1. The rate setups occur is 110% a function of price action unfortunately--just as once in a trade it's the market that determines whether targets are hit (this observation is not as unhelpful as it may seem ) As you surmise trading the mid term chart setups are not as frequent as when scalping from the short term chart (using mid term for confirmation) but P&L per trade tends to be proportionally larger.
2. Right now for the most part I manually trade the overlap between the N. American and European sessions, since activity dies at 11:30 EST when European markets close. If price is still moving (or trending) at the Euro close (like today) I might trade until the US close but without movement I stare at the charts too long and start seeing things that aren't there.
3. I find the Catch-22 about advice is that while experienced traders (far more experienced than I) can offer helpful advice it seems we're unable to appreciate it until we've advanced to a certain level under our own steam; in any event to a large extent it's essential to beat your own path through the jungle of options & advice pushed at us these days.
There is no indicator or method that I know of (short perhaps of following the calls in a trading room) that will make up for lack of knowledge & experience, so practice, practice, practice and study all the instrument- and chosen-trading-style material you can get your hands on. Regarding what to learn, psychology (self-overcoming) and money management trump technique & methodology in importance, by far. These are the source of most of the mistakes we make as traders, and learning not to repeat mistakes is probably pretty much all there is to profitable trading.
While developing a system backtesting is absolutely crucial. Without a system that has demonstrated performance we never know what to expect--hence unlikely to be consistently profitable--moreover will tend to have little or no faith in whatever rules we are using to trade, hence more prone to break them. Consistent adherence to the rules is what allows a system to achieve its potential.
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Ah yes, psychology was a hard thing to learn (and continue to learn) and took me losing several $$$$ before learning to let emotions go (I'm much better than I used to be, but every now and then I'll slip up). Money management is something I haven't explored much outside of what I already have in place. Do you know of any resources (books or online) that you recommend that focus on money management techniques?
I'm a "sponge" for knowledge, it's finding the right "water source" that seems to be my problem (although futures.io (formerly BMT) has been a great place to learn ).
I've read books on money management (e.g., most of what Van Tharpe wrote)....makes my eyes roll back in my head....but by far the best source I've found for anything trading related, including money management, is futures.io (formerly BMT)....gold mine of info for traders prepared to use pick and shovel. A search on "money management" should produce a wealth of info from many different perspectives, as in-depth as one can stand .
Regarding psychology, agree the need will vary with aptitude for trading. Unfortunately for me my personality (analytic, not as humble as I need to be, used to giving orders and having them carried out) means trading does not come naturally and my trading plan is heavily weighted toward working around persistent weaknesses (if you haven't already watched it, see e.g., Manesh Patel's latest webinar here)
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1. Losing $1200 on a losing trade is certainly a loser. When you've seen that, why haven't you cut back to at least 20 pips?
2. There is much free info out there on money management. Google trading-naked.com plus google money management. Stoll down on the trading-naked Library and there are several articles about money management. This IS a business remember.
3. In the end, it's what one is comfortable with. Some, as myself, have a very close mental stop-out, and some using higher time frames use the last High or Low or a specific number of pips. I developed my stop loss (again mental) when I first started trading from a reading "Phantom of the Pits" who stressed getting out of a trade as soon as it's not going your way. This is a free pdf file which is also on trading-naked Library.
4. Some use the strategy of sending out a scout (one Lot) and if it's going your way then add more Lots.
It sounds like you have a great trading strategy, but your only problem is money management and apparently haven't used multi-time frame charts giving you more info. BTW, are you aware of Elliot Waves? If so then you know how one can be chopped in waves 2 and 4.
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I will check that webinar out. I agree that futures.io (formerly BMT) contains a wealth of information, and you have contributed much to it. Thank you, good sir.
You mean cut back my stop to 20, right? Keeping the stop at 40 gives the trade more wiggle room and has helped keep me from getting stopped out on several occasions (in fact it kept me out of a stop out this morning). Now, cutting it back may indeed help make the strategy more profitable, but since I don't yet have the knowledge of EL to backtest the strategy I can't test that out.
Having a solid stop helps me, I think, because it takes almost all of the emotion out of the trade. I don't think I could have a mental stop loss... I would be a nervous wreck...
Would scout-lots work in such a short time frame? Seems like there's too much volatility in a 30m chart...?
You're correct, I don't use multiple time frames, but I'm seeing some definite benefits to using multi-time frame charts. I am not familiar with Elliot Waves at all actually. I will do some research on them. Do you have any recommended reading on the subject?
Arich, I bought the book, "Dynamic Trading" by Robert C. Miner years ago. Having said that, I'm not into deep Elliot Waves and one doesn't have to be. One only has to be aware of elementary 5Waves and Correction Waves to know what's going on. Frost and Prechters also has a book and a web site. However, they go into the very small abcs, x's and whatever and make money selling their stuff. Not necessary. The web site Traders Day Trading has some good info. You can Google it and also simply Google Elliot Waves and find other free resouces.
I don't find a 30M TF small, but that's just me. Some who trade off the Daily, 480, and 240 would find it small. Yes, the Scout Lot would be beneficial if you also had 5M and 15M charts also. Although I've traded Range charts, I check out what the 5M and 30M charts are telling me. Higher Highs? Lower Lows? As most traders, I also use Pivots and Fibs and for me, I'm aware of the possible Wave price is in.
I wasn't suggesting YOU use a mental stop. I was giving info on different MM techniques to look up and I gave mine. I DON'T trade off the 30M. If I did I wouldn't even have a 20 pip stop loss as I would be looking at the smaller TF with a smaller stop loss and move it up/down as price would be going in my direction. But hey, if you feel better losing $1200 on a loser trade, who am I to suggest otherwise.
So you are working with 30k? (1200 is 4% of 30k)--that's a good amount at your disposal.
The whole purpose of money management is to keep you in the game until the next series of winners show up to help you pay bills.
In a nutshell, if you cap your monthly loss to 6% of your starting balance, and the loss on any one trade to 2%, you will be better off.
Example; you start with 30k Oct 1st, 2012. You put on a trade with a hard stop loss of 2% ($600) It gets hit. You get in another trade and it's another loser, now you are down $1200. If you lose another 2% or $600 anytime during the month. you stop for the rest of the month and trade in simulation mode, no matter how much money you have made over and above the original losses! What this does is stop you from hurting yourself when your method is obviously not firing on all cylinders and keep you in the game, long term.
Now, Arich, go back over your records and see what might have happened with the same distribution of winners and losers IF you had applied the two rules above.
TWO RULES OF TRADING
If you DON'T bet, you CAN'T win...If you run out of money you CAN'T bet...
I will interested to learn what this exercise brings out.
As for scalping, I learned to "scalp" on a site called betfair.com and there, what you here call 'scalping', they called 'trading' (as opposed to 'backing' or 'laying', ie, betting on the outcome of a UK horse race. Instead of betting on which horse would win the race, "traders" on betfair would bet if the price on a particular runner would go up or down, providing liquidity and depth of market to the folks who simply wanted to bet that their horse would win--or lose!--yes, you can bet horses to lose on betfair.)
So a good trade in that environment, was a one-tick movement. Buy the bid, sell the ask. You have to remember also, that I trade forex on MB trading, so I in effect, get paid to place trades... $1 per 100k. ($2 per standard lot roundtrip).
If I can simply churn or "scratch" 10 million dollars, I've made $100 in commission rebates. So if the market isn't going the way I want in a hurry!--I just get out and look to get back in when conditions seem more favorable (per my Bill Williams' style "alligator" charts. For me, a scratch trade is a winning trade. It means I just won small.
Basically my method is this: check my charts and get a directional bias, say long; then I start buying... I scale in $1000 to $2000 at a time, and as soon as I am profitable (based on my average price per lot) and the trade starts to work for me, I scale out---quickly! Once that is done, I then "rinse and repeat".
On betfair, in the olden days, there were NO charts (except a very primitive price over time line on close chart.this chart did NOT aggressively update in real time like charts nowadays do) and in the beginning NO DOM to place bets--so it took several mouse clicks to place or cancel an order: it was truly slow and very tedious.
To succeed, you literally learned to "feel" the weight of money shifting the scales one direction or the other by watching the money pile up on the bid or ask side on the betfair website.
And of course, you could get tricked by "spoofers" (people who place LARGE orders and then quickly pull them before they get filled.)
But do you want to know what I found to be the hardest and most difficult thing to learn about scalping? taking losses quickly. You can't make a living on one tick gains taking 3 tick losses half the time.