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Learning price action - how long, how many hours per day, how many pips
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Learning price action - how long, how many hours per day, how many pips

  #21 (permalink)
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Roger that Adamus. Regarding the nurture of kids, nature seemingly not so far interested in passing on more transient qualities of ourselves at conception, like knowledge & experience, I've often wished science provided a pill we could give them to transfer one's know-how in one go without having to spend decades counselling, cajoling, disciplining & tearing one's hair every time they repeat mistakes we've already learned from :-/ That said I imagine such a pill would be in the category of strategy optimization--broadly based, like public health care, good as far as it goes, with similar trade-offs. No need for example to pass on the ability to drink 2 litres of wine in order to suffer through a civil evening with the inlaws--some things better learned if & when circumstances arise IMO, although selective recall could be value-added to the private-pay version

3 more observations at this juncture regarding price trading:

- a psychological mistake that seems to be costing the kids heavily to this point, that I'm still occasionally prone to, is basing exits on bogus profit/loss considerations like, "I'm not going to exit until I've made X profit" or "It's so close I'm not going to exit until I break even" or "I'm not going to exit this (so far profitable) trade until I've made up my losses" and so on. Price does not care what our situation is and in my experience there is no relief greater than exiting a trade we're unsure of. Each trade is in a psychological zone of its own--all that ought to control the exit is what we perceive (determined by trading experience) price is likely to do next in the session time frame.

- given that volume is inaccessible to spot Forex trading, while bid / ask price fluctuates in concert during any move there is a change & often tell-tale activity in bid / ask price in the vicinity of S/R/Pivot levels that seems to predict what price is going to make of the obstacle. Combined with length of time at the level I've found this activity to be be a useful substitute for knowledge of full-blown momentum.

- Psychologically I comfort myself accepting the belief that as a USD 3.6 trillion / day market few if any organized entities seriously aim to influence currency trading very often, and therefore we as retailer traders aim simply to capitalize on price movement--it's not a war between us and the enemy, as it is say, between us and our local bank, who may be inclined to charge us 300 pips just to buy currency to go on vacation. Substantial moves occur because a country or a large company (or a number of small companies) try to hedge expenses based on news, or a large commercial trader perceives an advantage of some sort and therefore chooses to establish a position. The consequence of price action for us retail maggots is to recognize the change of position while it occurs--no more and no less. IMO in spot Forex nobody is out to exterminate us so far , although in the opinion of my heaviest losing son brokers only keep you alive to feed on you


Last edited by bnichols; April 4th, 2011 at 02:14 AM.
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  #22 (permalink)
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I should add, none of this navel gazing matters if (as Cory implied) you're paying taxes.

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  #23 (permalink)
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bnichols View Post
- given that volume is inaccessible to spot Forex trading, while bid / ask price fluctuates in concert during any move there is a change & often tell-tale activity in bid / ask price in the vicinity of S/R/Pivot levels that seems to predict what price is going to make of the obstacle. Combined with length of time at the level I've found this activity to be be a useful substitute for knowledge of full-blown momentum.

All interesting points, especially that one quoted above, about which I have no idea. On my chart in NinjaTrader, the bid/ask numbers are off to the bottom right and pretty much out of sight and out of mind. I haven't looked at them once in the few hours I've had practising this stuff so far.

I guess that might mean I should look at longer time frame bars to give myself a chance to keep the bid/ask under observation.

So what does it do? I've written indicators for the NinjaTrader market analyzer (a primitive kind of spreadsheet if you don't know it) to keep tabs on the bid/ask spread over the long term, for the sake of knowing what kind of spread I'm paying especially on the exotic pairs I trade my systems on, so I figure I could adapt it to show something on a chart.

Talking of which, what pairs do you trade?

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  #24 (permalink)
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Adamus View Post
All interesting points, especially that one quoted above, about which I have no idea. On my chart in NinjaTrader, the bid/ask numbers are off to the bottom right and pretty much out of sight and out of mind. I haven't looked at them once in the few hours I've had practising this stuff so far.

I guess that might mean I should look at longer time frame bars to give myself a chance to keep the bid/ask under observation.

So what does it do? I've written indicators for the NinjaTrader market analyzer (a primitive kind of spreadsheet if you don't know it) to keep tabs on the bid/ask spread over the long term, for the sake of knowing what kind of spread I'm paying especially on the exotic pairs I trade my systems on, so I figure I could adapt it to show something on a chart.

Talking of which, what pairs do you trade?

Sorry to take so long to reply. I spent the week discretionary trading almost non-stop--224 trades in total--trying to make a dent in the "10,000 hours required to learn anything" while the markets are open .

Now that I've rested and reviewed last weeks trades I'm feeling positively chatty--please bear with me.

Regarding what Bid/Ask do, in general they track more or less 3 or 4 pips apart for the EUR/CAD pair (Interactive Brokers feed), although today I noticed 1/2 pip fairly often and occasionally 0 pips--even negative pips at least once . At the tick level bid & ask behave as if attached by a rubber band (going in opposite directions and springing back, colliding, one briefly taking off before the other follows, or not)--"jitter" superimposed on the average spread, presumably bot induced. This jitter becomes more pronounced from time to time, bearing in mind that one trader's "jitter" is another trader's range trade. The thesis is jitter may adopt a style (what the mind makes of the statistical density function) as a precursor to larger scale price movement--trend confirmation or reversal over the time frame of interest--perhaps even signature behaviour in a given context that might distinguish incipient upward and downward movement. Observing this activity for a period of time (e.g., a few seconds when scalping or longer at an S/R level) and then noting which way price eventually moves, after a while seems to train one's "gut" to predict which way it's most likely to go--easier to watch & learn unfortunately than to explain

If such a relationship exits no doubt there is already an indicator out there that displays it. In any case it might be instructive to develop one.

Regarding what I trade, I've fiddled with most of the major pairs but am focused right now exclusively on EUR.CAD to avoid distraction, "distraction" including trying to hedge my account currency (CAD) against a different quote currency. In other words to trade e.g., USD/JPY I'd have to manage JPY/CAD at the same time, since conceivably JPY/CAD could undo me if ignored.

This week I switched back to BetterRenko bars from minute bars and reverted to averaging into and out of trades 1/4 position at a time rather than going all in and all out. Not sure why but this combo seems to work best for me all of a sudden. Sleep deprivation may have something to do with it.

The 3 indicators I depend upon are MurreyMath and Pivots for support / resistance and an indicator called ShowBidAsk (derived from one written by "Ben L" & probably called "ShowBid").

MurreyMath & Pivots help identify where a trend may pause & also potential range boundaries, given that it's observing what price actually does in the vicinity of these levels, rather than allowing one's self to be deluded by a preconceived notion of what price "should do", that is more helpful predicting what it's likely to do next.

I like ShowBidAsk because it's "in your face"--displays bid/ask movement by drawing 2 lines from the right (price) side of the chart to the current bar at the Ask price (blue line) and at the Bid price (red) line. I find it handy in tandem with NT's ChartTrader "Buy Market" and "Sell Market" buttons for picking more or less precise entry or exit prices, especially when scalping for a few pips. I've given up on other means ("Buy Ask", "Buy Bid" and pre-placement of entries, stops and targets) for the time being in favour of this perhaps less disciplined ("cowboy") approach and in that vein depend on the Close button occasionally when it's seriously time to get out of Dodge :-/

There are 2 other indicators on the chart in the screen captures below: a home brew version of Raghee Horner's "Forex Wave" and GRTPriceChannelV2_20110130 (Copyright (C) 2010, Golden Rule Trading, LLC, available in the Elite Download section).

I implemented "Forex Wave" out of curiosity a couple of days ago after reading something by Ms Horner--simply three 34-period EMAs: High (red), Close (green) and Low (blue) respectively. Not sure I can benefit from it yet but FWIW will likely add an oscillator to quantify the way Close EMA wanders between High EMA and Low EMA since the Close EMA tends to approach the High EMA in an uptrend and approach the Low EMA in a downtrend and may therefore serve as yet another trend indicator. The oscillator could be displayed either as a curve in a lower panel or as colour effects on the 3 EMA plot.

GRTPriceChannel (applies a red/blue background to bid price trajectory) was added experimentally after seeing it used on Roger Felton's charts in the Divergence Trading webinar (Elite feature) last Tuesday.

Both Forex Wave and PriceChannel are there for amusement so far--not for trading.

In terms of execution this week the idea was to maneuver average fill to the proper side of an anticipated position ASAP (above price if we're short, below if long). While averaging into a position can be dangerous when price is going against you, IMO it's worth practicing to get some idea of what the rules are. One reason we can sometimes (often?) make money entering with price initially moving against us is that to some extent trading operates the same way as Maxwell's Daemon: traders try to "let only the hot molecules through" (i.e., scramble to realize only profitable trades, absorbing adverse excursions to the extent money management permits). In other words on occasion we may suffer a $200 adverse excursion waiting for a $400 trade to materialize only to realize $10, but that is $10 in the bank -- the adverse excursion expended harmlessly, kind of like a coupon for a trading lesson that in other circumstances might have cost us $200 :-/ .

I find adverse excursion serves another purpose when discretionary range trading: namely, it is the bot-equivalent, or quantitative measure, of the scale of human emotion when a trade is going against us (e.g., the spectrum of emotion from initial hope it will turn around, through fear that it won't, followed by the usual dread, panic, catatonia, etc. ). As others on this forum have commented range trading works great until the inevitable breakout occurs, and this is what invariably used to do me in (a mental condition characterised by unwillingness to accept a loss). These days as soon as something about the math is not adding up I start averaging out of the position (about the time the feeling "hmm......hope it will turn around" would hitherto raise its ugly head). Price pattern and bid/ask jitter feed us probabilities--load the gun, so to speak--adverse excursion pulls the trigger.

Favorable excursion serves a similar purpose when the trade is working, replacing positive emotions that can range approximately from the initial warm feeling that all's right with the world to drunken euphoria in the late stage. These days I begin to realize gains at the first concrete sign that trend is beginning to stumble, usually at an S/R/Pivot point. If a relatively significant pullback occurs (price retreats but then turns to resume the overall trend) I tend to trade the retrace rather than move a stop to just below the retrace bottom price; e.g., if long & having sold 1/4 of the position, say, at the first obvious sign of trouble, I try to replace the units with a buy at what may turn out to be the bottom. The longer we range trade price fluctuations in the vicinity of an S/R level the closer the average fill of our trend trade approaches price action, but also, so far in my experience, the higher the probability the trend is over--in which case we're already in the range trade when fill price catches up to the pattern.

At this stage in my development the somewhat aggressive style outlined above helps me avoid catastrophic losses by managing the transition between range & trend trading automatically. Almost invariably with this method the transition from range trading to trend trading incurs a number of small losses, cost of doing business (or if one has a spiritual bent, returning a little of the catch to the sea, not muzzling the ox, etc. ) but also a wakeup call, while the transition from trend to range doesn't need to incur any loss. As important IMO it tends to maximize profit opportunities once position synchronizes with price.

Also at this stage I expect to start making money. From a psychological perspective discretionary trading now seems almost like working any other desk job for which one is marginally equipped. One starts the day with a to-do list and proceeds to whittle away at it; some things go right and some things go wrong but by the end of the day one has muddled through.

The objective this week therefore was to average $400 / day at $20 / pip (i.e., 20 pips a day before commission if all trades were all in), which in light of personal circumstances ought to be realistic, if challenging. The idea was to scalp when price was not trending ("ranging" let's say--moving a few Renko bar heights in either direction, randomly or not) and position trade when a trend emerged.

To sum up, I did manage to average the $400 / day paper trading a minimal Interactive Brokers account ($10,000 / 28.57 leverage, or a rough maximum of 200,000 - 250,000 units since IB doesn't work with lots, which means 1/4 position is 50,000 units, more or less). Another week or 2 to confirm results & I'll likely be comfortable discretionary trading the same minimal amount with real money

The first screenshot below shows the last trades of the week (April 8 in the AM, ~ $200 drawdown trying to get on the right side of the range trade followed by transition to a profitable trend trade with approximately $800 gain).

The second screenshot shows why I (to this point strictly a technician) learned this week to at least be aware of pending news via babypips or forexfactory (in this case, a comment by the ECB on the latest interest rate decision at 8 AM AST April 8)

The third screenshot shows a familiar sob story ("the moment I turned my back...."), that while I trade from a 11.5" netbook and hence can (and do) wander around the house trading from any room, & occasionally in bed, I might consider carrying it more often than I do (Ignore temporary stochastics & MACD on the chart).

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  #25 (permalink)
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bnichols View Post
Regarding what Bid/Ask do, in general they track more or less 3 or 4 pips apart for the EUR/CAD pair (Interactive Brokers feed), although today I noticed 1/2 pip fairly often and occasionally 0 pips--even negative pips at least once . At the tick level bid & ask behave as if attached by a rubber band (going in opposite directions and springing back, colliding, one briefly taking off before the other follows, or not)--"jitter" superimposed on the average spread, presumably bot induced. This jitter becomes more pronounced from time to time, bearing in mind that one trader's "jitter" is another trader's range trade. The thesis is jitter may adopt a style (what the mind makes of the statistical density function) as a precursor to larger scale price movement--trend confirmation or reversal over the time frame of interest--perhaps even signature behaviour in a given context that might distinguish incipient upward and downward movement. Observing this activity for a period of time (e.g., a few seconds when scalping or longer at an S/R level) and then noting which way price eventually moves, after a while seems to train one's "gut" to predict which way it's most likely to go--easier to watch & learn unfortunately than to explain

If such a relationship exits no doubt there is already an indicator out there that displays it. In any case it might be instructive to develop one.

That's fascinating. I tend to watch EUR/USD and GBP/USD whose spreads vary around 0.75 ticks and 1.5 ticks respectively so I figure it would be harder to see this jitter you are talking about.

I can't imagine what visual display would give a good representation of the jitter described but I assume you'd have to use an indicator to show any jitter around an average of 0.75 - you just won't see it on a normal price chart, right?

I wrote an indicator to show the 20-tick moving average for the spreads so I can see what's expensive and when. Have a look at it in the attachment. Very plodding.

Do you think it would be worth showing the volatility of the bid-ask spread? And what sort of time frame? 20-tick?



bnichols View Post
This week I switched back to BetterRenko bars from minute bars and reverted to averaging into and out of trades 1/4 position at a time rather than going all in and all out. Not sure why but this combo seems to work best for me all of a sudden. Sleep deprivation may have something to do with it.

I haven't chosen any methodology yet, so you're a mile ahead of me. I look at the plethora of different signals, time frames, currency pairs, money management etc to choose from and I realise it's going to take days if not weeks to try them all out.


bnichols View Post
In terms of execution this week the idea was to maneuver average fill to the proper side of an anticipated position ASAP (above price if we're short, below if long). While averaging into a position can be dangerous when price is going against you, IMO it's worth practicing to get some idea of what the rules are. One reason we can sometimes (often?) make money entering with price initially moving against us is that to some extent trading operates the same way as Maxwell's Daemon: traders try to "let only the hot molecules through" (i.e., scramble to realize only profitable trades, absorbing adverse excursions to the extent money management permits). In other words on occasion we may suffer a $200 adverse excursion waiting for a $400 trade to materialize only to realize $10, but that is $10 in the bank -- the adverse excursion expended harmlessly, kind of like a coupon for a trading lesson that in other circumstances might have cost us $200 :-/ .

I find adverse excursion serves another purpose when discretionary range trading: namely, it is the bot-equivalent, or quantitative measure, of the scale of human emotion when a trade is going against us (e.g., the spectrum of emotion from initial hope it will turn around, through fear that it won't, followed by the usual dread, panic, catatonia, etc. ). As others on this forum have commented range trading works great until the inevitable breakout occurs, and this is what invariably used to do me in (a mental condition characterised by unwillingness to accept a loss). These days as soon as something about the math is not adding up I start averaging out of the position (about the time the feeling "hmm......hope it will turn around" would hitherto raise its ugly head). Price pattern and bid/ask jitter feed us probabilities--load the gun, so to speak--adverse excursion pulls the trigger.

Favorable excursion serves a similar purpose when the trade is working, replacing positive emotions that can range approximately from the initial warm feeling that all's right with the world to drunken euphoria in the late stage. These days I begin to realize gains at the first concrete sign that trend is beginning to stumble, usually at an S/R/Pivot point. If a relatively significant pullback occurs (price retreats but then turns to resume the overall trend) I tend to trade the retrace rather than move a stop to just below the retrace bottom price; e.g., if long & having sold 1/4 of the position, say, at the first obvious sign of trouble, I try to replace the units with a buy at what may turn out to be the bottom. The longer we range trade price fluctuations in the vicinity of an S/R level the closer the average fill of our trend trade approaches price action, but also, so far in my experience, the higher the probability the trend is over--in which case we're already in the range trade when fill price catches up to the pattern.

You're doing quite well range trading and trend trading, needless to say I haven't decided which to try first. You make it sound like a logical approach. I think I'll concentrate on the trend trading first myself.


bnichols View Post
At this stage in my development the somewhat aggressive style outlined above helps me avoid catastrophic losses by managing the transition between range & trend trading automatically. Almost invariably with this method the transition from range trading to trend trading incurs a number of small losses, cost of doing business (or if one has a spiritual bent, returning a little of the catch to the sea, not muzzling the ox, etc. ) but also a wakeup call, while the transition from trend to range doesn't need to incur any loss. As important IMO it tends to maximize profit opportunities once position synchronizes with price.

Your implication is that not trading both ranges and trends results in catastrophic losses - how well defined is that perception? I'm sure when I look at a chart it'll be hard for me to distinguish ranging from trending anyway.



bnichols View Post
Also at this stage I expect to start making money. From a psychological perspective discretionary trading now seems almost like working any other desk job for which one is marginally equipped. One starts the day with a to-do list and proceeds to whittle away at it; some things go right and some things go wrong but by the end of the day one has muddled through.

The objective this week therefore was to average $400 / day at $20 / pip (i.e., 20 pips a day before commission if all trades were all in), which in light of personal circumstances ought to be realistic, if challenging. The idea was to scalp when price was not trending ("ranging" let's say--moving a few Renko bar heights in either direction, randomly or not) and position trade when a trend emerged.

To sum up, I did manage to average the $400 / day paper trading a minimal Interactive Brokers account ($10,000 / 28.57 leverage, or a rough maximum of 200,000 - 250,000 units since IB doesn't work with lots, which means 1/4 position is 50,000 units, more or less). Another week or 2 to confirm results & I'll likely be comfortable discretionary trading the same minimal amount with real money

The first screenshot below shows the last trades of the week (April 8 in the AM, ~ $200 drawdown trying to get on the right side of the range trade followed by transition to a profitable trend trade with approximately $800 gain).

The second screenshot shows why I (to this point strictly a technician) learned this week to at least be aware of pending news via babypips or forexfactory (in this case, a comment by the ECB on the latest interest rate decision at 8 AM AST April 8)

The third screenshot shows a familiar sob story ("the moment I turned my back...."), that while I trade from a 11.5" netbook and hence can (and do) wander around the house trading from any room, & occasionally in bed, I might consider carrying it more often than I do (Ignore temporary stochastics & MACD on the chart).

You should start a journal. I'm sure it would be widely read.

Do you find EUR/CAD's spread of avg 4 ticks is palatable? Do you not worry that you're just making your day harder crossing that big bid/ask spread?

Enough questions for now. Thanks for the post.

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  #26 (permalink)
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Sorry for taking so long to reply--as John Lennon said, "Life is what happens to you while you're busy making other plans."

Since I last posted I've switched to EUR/USD & made about 820 discretionary short term trades on paper, blowing away half of my paper account before figuring out what my approach needed to be.


Adamus View Post
That's fascinating. I tend to watch EUR/USD and GBP/USD whose spreads vary around 0.75 ticks and 1.5 ticks respectively so I figure it would be harder to see this jitter you are talking about.

I can't imagine what visual display would give a good representation of the jitter described but I assume you'd have to use an indicator to show any jitter around an average of 0.75 - you just won't see it on a normal price chart, right?

I wrote an indicator to show the 20-tick moving average for the spreads so I can see what's expensive and when. Have a look at it in the attachment. Very plodding.

Do you think it would be worth showing the volatility of the bid-ask spread? And what sort of time frame? 20-tick?

After a fair amount of thought I still can't visualize how a spread jitter indicator would work either. From my perspective although variance would capture an aspect of it, the interesting bit is how bid/ask respond to each other intrabar (how the pattern varies while the bar is being constructed). It occurred to me one approach might be to assign a "phoneme" to each sub-pattern and play the sequence over the computer's speakers

As you pointed out, when active EUR/USD tends to trade with a very narrow spread, 2 pips suggesting (to me) relative illiquidity. To the extent jitter is present it's proportionately less compared e.g. to EUR/CAD, but patterns still appear to be defined. There may be some correlation between jitter and the instantaneous shape of the volume ladder, in which case bid/ask volume could be a proxy.

For me the show stopper at this point is oddities in the exported NT/IB tick data--no surprises there I suppose-- it will require more processing than I have time for.

The bottom line is, while I think it's interesting to look at price action under the microscope and it's still possible a useful indicator can be derived from the fine structure (and hence could be incorporated into a bot), practically speaking it's a secondary (or tertiary) concern right now. I can't develop a bot until I've nailed the methodology (in this case, of short time frame discretionary spot Forex) and so far I'm still battling psychology



Adamus View Post
I haven't chosen any methodology yet, so you're a mile ahead of me. I look at the plethora of different signals, time frames, currency pairs, money management etc to choose from and I realise it's going to take days if not weeks to try them all out.

What seems to be emerging over the last ~1000 EUR/USD trades is scalping for $10 - $100 per trade comes naturally for me, going for the long bomb not so much. Earning $10 - $50 / trade at a rate of 5-10 trades / hour involves relatively little risk and eventually adds up, whereas bigger stops (bigger risk in theory for bigger gains) tend to translate into bigger (and very often irrecoverable) losses. Since the risk ought to depend on the setup this likely implies I have little feeling for longer-term setups (i.e., 10's of minutes to an hour or more) . I have yet to determine if there is a risk-related dividing line between successful & unsuccessful setups, and if so where it might be, except that position sizing so far doesn't seem to be much of a factor.

As much as I'd like to be able to sit on my hands all morning listening to that ka-ching sound NT makes as the trailing stop advances it will likely remain the exception rather than the rule. As it is I still actively manage the trailing stop and do not hesitate to hit the Close button if my spider sense starts to tingle.

As a consequence I'll probably continue to focus on developing a scalping technique perhaps similar to Roger Felton's (elite webinar, https://futures.io/elite-circle/9164-webinar-divergence-other-neat-stuff-april-5-2011-a.html), the idea being to implement a scalping bot if the heuristics can be quantified.




Adamus View Post
You're doing quite well range trading and trend trading, needless to say I haven't decided which to try first. You make it sound like a logical approach. I think I'll concentrate on the trend trading first myself.

Your implication is that not trading both ranges and trends results in catastrophic losses - how well defined is that perception? I'm sure when I look at a chart it'll be hard for me to distinguish ranging from trending anyway.

I tend to equivalence range trading to counter-trend trading and as others have pointed out this means setting one's self up for a loss when the inevitable reversal occurs. In this sense a "range" can comprise one cycle (e.g., a temporary pullback during a trend) or more (e.g., during a period of consolidation).

I tend to trade as if every trade were a range trade, with an eye to being on the right side of the breakout/reversal when it occurs--in other words, with an eye to capturing the transition between one region of price action and the next region (the transition being "the trend trade"). If we happen to luck out and the counter-trade turns into a trend in the favourable direction it is simply a matter of letting profits run.

When feeling timid I'll place OCO buy/sell stops on either side of the range and watch for a while.

One might argue every trade is trend trade, no matter how brief; that in hindsight if it turns out we've been trading a range, IMO hindsight is for historians--not traders. My background is math & time series analysis so to some extent I find it helpful visualize price action in terms of running probability density--nothing more than a mental vertical volume indicator perhaps--more or less Gaussian over a given range and more or less flat when trending. I tend to enter/exit trades at the "thin edge of the wedge" (+/- 3 or more standard deviations) when the density has a shape whether with the trend or counter trend, and stand pat otherwise.

For me job 1 is preserving capital, which means when price turns against us it's better over the long haul to protect what we have than lose what we never had (i.e., better to incur a small loss at the cost, say, of missing a big move when a reversal turns out to be temporary). Hindsight may be 20-20 but the fact remains trading boils down to how we perform at the instant a decision is required, given that will never know for sure what price is about to do. Over time we get better at estimating probabilities and hence more able to handle risk, but for me this has been a gradual process proportional to the number of analyzed trades I get under my belt.

In any event (range or trend trade) the main component of my discretionary trading method, such as it is, amounts to having a clear picture in one's mind at the outset of what price is going to do for the duration of the trade, including a map of S/R levels it will encounter, and while the trade is in process a picture of what price is going to do next, and bail at the first sign price is deviating from the picture, loss, no loss or mind-boggling profit. I've found changing one's perspective ("the initial picture") in mid-trade is a recipe for disaster.

While I define a profit target for each trade it's not cast in stone. I'm not disappointed by any profit, especially do not imagine that I'll recognize or capture the maximum favourable excursion. Depending on circumstances, the more likely it seems the target will be hit the more likely I'll move the target away, given that I use multilevel trailing stops programmed to close in on price as price approaches the target.

This (tendency to bail at the first sign of trouble) gets easier to do the more often one loses a ton of money assuming the deviation is merely "widening variance". In other words, the small loss one might incur for what might turn out to be no good reason (i.e., when in fact it is merely widening variance), pales in comparison to what one can lose if a breakout ensues, and in the long run it is absolutely imperative to keep losses small.

It's true we are only as good as our last trade, but there is a big (read, "potentially life-altering") difference between a disappointing trade and one that wipes us out. Methodology aside, IMO discretionary losses mirror psychological issues--the bigger the loss the bigger the issue, sudden onset losses the sign of a (re)emerging issue. In my case the number & severity of issues appears to be subsiding over time and I've learned to recognize a couple of tradable mindsets (appropriate, say, to aggressive & cautious trading), but the problem I still face is what still remains the fine line / subtle difference (again in my case) between a trading mentality and a gambling mentality. At this point in my short time frame discretionary Forex trading career I'm pretty much past the more obvious traps (especially revenge trading ). The good news is the more I trade the more obvious the distinction seems to become. In any event I trust bots don't inherit the psychological issues of their developers



Adamus View Post
You should start a journal. I'm sure it would be widely read.

May do when I start trading real money.


Adamus View Post
Do you find EUR/CAD's spread of avg 4 ticks is palatable? Do you not worry that you're just making your day harder crossing that big bid/ask spread?

I find spread affects my trading style, but I suspect it's overall larger price swings that contribute to larger profits. When I switched to EUR/USD the liquidity difference seemed like night and day, but the main effect was to reduce the accounting effort due to spread. On the other hand I had to learn new price action. The unfortunate fact remains one needs to learn how to trade the instrument--can't blame losses on relatively insignificant factors like spread

As an aside I'm now also using BetterRenko volume (what NT prints as volume in a lower panel) and PriorDayOHLC indicators, since I interpret volume spikes to mark market indecision (in effect volume adds back the time dimension lost to range bars) and the market loves prior day OHLC levels possibly more than it does pivots.


Last edited by bnichols; May 8th, 2011 at 05:53 PM. Reason: Typos
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  #27 (permalink)
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adamus -- updated to report I did start a journal (https://futures.io/trading-journals/10657-stf-discretionary-spot-forex-system-development-journal.html)

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I'm going to break your message up, hope you don't mind.


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After a fair amount of thought I still can't visualize how a spread jitter indicator would work either. From my perspective although variance would capture an aspect of it, the interesting bit is how bid/ask respond to each other intrabar (how the pattern varies while the bar is being constructed). It occurred to me one approach might be to assign a "phoneme" to each sub-pattern and play the sequence over the computer's speakers

As you pointed out, when active EUR/USD tends to trade with a very narrow spread, 2 pips suggesting (to me) relative illiquidity. To the extent jitter is present it's proportionately less compared e.g. to EUR/CAD, but patterns still appear to be defined. There may be some correlation between jitter and the instantaneous shape of the volume ladder, in which case bid/ask volume could be a proxy.

For me the show stopper at this point is oddities in the exported NT/IB tick data--no surprises there I suppose-- it will require more processing than I have time for.

The bottom line is, while I think it's interesting to look at price action under the microscope and it's still possible a useful indicator can be derived from the fine structure (and hence could be incorporated into a bot), practically speaking it's a secondary (or tertiary) concern right now. I can't develop a bot until I've nailed the methodology (in this case, of short time frame discretionary spot Forex) and so far I'm still battling psychology

I'm going to start another thread relating to the bid / ask spread and what goes on there including not just the jitter that you see but whether there's anything that we chart traders might be able to import from the book ladder, especially if we're talking forex.

To me while I was watching some big pushes yesterday, the bid and the ask looked as though they were in fact one item, moving up or down without changing their spread. That surprised me. I'm not sure I fully understand what is going on there regarding brokers, liquidity providers, bulls, bears, etc.

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As much as I'd like to be able to sit on my hands all morning listening to that ka-ching sound NT makes as the trailing stop advances it will likely remain the exception rather than the rule. As it is I still actively manage the trailing stop and do not hesitate to hit the Close button if my spider sense starts to tingle.

As a consequence I'll probably continue to focus on developing a scalping technique perhaps similar to Roger Felton's (elite webinar, https://futures.io/elite-circle/9164-webinar-divergence-other-neat-stuff-april-5-2011-a.html), the idea being to implement a scalping bot if the heuristics can be quantified.

Good luck with that. Originally that was a goal of mine too (generally, not Felton's) but I have decided that my 'programming instincts' are too strong and so my reaction is to try deliberately to learn a method of trading, profitably, that I will never be able to automate.

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bnichols View Post
What seems to be emerging over the last ~1000 EUR/USD trades is scalping for $10 - $100 per trade comes naturally for me, going for the long bomb not so much. Earning $10 - $50 / trade at a rate of 5-10 trades / hour involves relatively little risk and eventually adds up, whereas bigger stops (bigger risk in theory for bigger gains) tend to translate into bigger (and very often irrecoverable) losses. Since the risk ought to depend on the setup this likely implies I have little feeling for longer-term setups (i.e., 10's of minutes to an hour or more) . I have yet to determine if there is a risk-related dividing line between successful & unsuccessful setups, and if so where it might be, except that position sizing so far doesn't seem to be much of a factor.

As much as I'd like to be able to sit on my hands all morning listening to that ka-ching sound NT makes as the trailing stop advances it will likely remain the exception rather than the rule. As it is I still actively manage the trailing stop and do not hesitate to hit the Close button if my spider sense starts to tingle.

As a consequence I'll probably continue to focus on developing a scalping technique perhaps similar to Roger Felton's (elite webinar, https://futures.io/elite-circle/9164-webinar-divergence-other-neat-stuff-april-5-2011-a.html), the idea being to implement a scalping bot if the heuristics can be quantified.





I tend to equivalence range trading to counter-trend trading and as others have pointed out this means setting one's self up for a loss when the inevitable reversal occurs. In this sense a "range" can comprise one cycle (e.g., a temporary pullback during a trend) or more (e.g., during a period of consolidation).

I tend to trade as if every trade were a range trade, with an eye to being on the right side of the breakout/reversal when it occurs--in other words, with an eye to capturing the transition between one region of price action and the next region (the transition being "the trend trade"). If we happen to luck out and the counter-trade turns into a trend in the favourable direction it is simply a matter of letting profits run.

When feeling timid I'll place OCO buy/sell stops on either side of the range and watch for a while.

One might argue every trade is trend trade, no matter how brief; that in hindsight if it turns out we've been trading a range, IMO hindsight is for historians--not traders. My background is math & time series analysis so to some extent I find it helpful visualize price action in terms of running probability density--nothing more than a mental vertical volume indicator perhaps--more or less Gaussian over a given range and more or less flat when trending. I tend to enter/exit trades at the "thin edge of the wedge" (+/- 3 or more standard deviations) when the density has a shape whether with the trend or counter trend, and stand pat otherwise.

For me job 1 is preserving capital, which means when price turns against us it's better over the long haul to protect what we have than lose what we never had (i.e., better to incur a small loss at the cost, say, of missing a big move when a reversal turns out to be temporary). Hindsight may be 20-20 but the fact remains trading boils down to how we perform at the instant a decision is required, given that will never know for sure what price is about to do. Over time we get better at estimating probabilities and hence more able to handle risk, but for me this has been a gradual process proportional to the number of analyzed trades I get under my belt.

In any event (range or trend trade) the main component of my discretionary trading method, such as it is, amounts to having a clear picture in one's mind at the outset of what price is going to do for the duration of the trade, including a map of S/R levels it will encounter, and while the trade is in process a picture of what price is going to do next, and bail at the first sign price is deviating from the picture, loss, no loss or mind-boggling profit. I've found changing one's perspective ("the initial picture") in mid-trade is a recipe for disaster.

While I define a profit target for each trade it's not cast in stone. I'm not disappointed by any profit, especially do not imagine that I'll recognize or capture the maximum favourable excursion. Depending on circumstances, the more likely it seems the target will be hit the more likely I'll move the target away, given that I use multilevel trailing stops programmed to close in on price as price approaches the target.

This (tendency to bail at the first sign of trouble) gets easier to do the more often one loses a ton of money assuming the deviation is merely "widening variance". In other words, the small loss one might incur for what might turn out to be no good reason (i.e., when in fact it is merely widening variance), pales in comparison to what one can lose if a breakout ensues, and in the long run it is absolutely imperative to keep losses small.

It's true we are only as good as our last trade, but there is a big (read, "potentially life-altering") difference between a disappointing trade and one that wipes us out. Methodology aside, IMO discretionary losses mirror psychological issues--the bigger the loss the bigger the issue, sudden onset losses the sign of a (re)emerging issue. In my case the number & severity of issues appears to be subsiding over time and I've learned to recognize a couple of tradable mindsets (appropriate, say, to aggressive & cautious trading), but the problem I still face is what still remains the fine line / subtle difference (again in my case) between a trading mentality and a gambling mentality. At this point in my short time frame discretionary Forex trading career I'm pretty much past the more obvious traps (especially revenge trading ). The good news is the more I trade the more obvious the distinction seems to become. In any event I trust bots don't inherit the psychological issues of their developers




May do when I start trading real money.



I find spread affects my trading style, but I suspect it's overall larger price swings that contribute to larger profits. When I switched to EUR/USD the liquidity difference seemed like night and day, but the main effect was to reduce the accounting effort due to spread. On the other hand I had to learn new price action. The unfortunate fact remains one needs to learn how to trade the instrument--can't blame losses on relatively insignificant factors like spread

As an aside I'm now also using BetterRenko volume (what NT prints as volume in a lower panel) and PriorDayOHLC indicators, since I interpret volume spikes to mark market indecision (in effect volume adds back the time dimension lost to range bars) and the market loves prior day OHLC levels possibly more than it does pivots.

Very interesting stuff, it gives me a lot of leads that I must follow up when I get on top of the things I'm dealing with now. I love your description of price as a probablility density. It seems every trader is marked by his background in some way and yours seems to give you possibly a unique style - I've not heard anything similar IIRC. I assume though that a lot of quants in banks are also using your approach, but I bet they don't trade it before they write their bots, therefore losing out on a possibly major advantage.

It's great that you've moved across to the EUR/USD.. Let me just verify the syntax here: when you say 'pip' do you mean the 4th digit after the decimal? I realised yesterday that I was probably confusing everyone I talked to by talking about forex 'points', so I changed my syntax to pips, following NinjaTrader, who refer to it like that and also to the 5th after the decimal point as the 'half pip' if it's there (e.g. 1.4375'5).

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