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Trading the SLA/AMT Intraday


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Trading the SLA/AMT Intraday

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  #201 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


lajx View Post
Context 06/07

Although the PA shows an uptrend in the 5m chart, I was unable to sync with the market

Or the market and your tactics were not compatible.

A grinding morning. If one didn't want to get caught in ranges or chop and didn't want to use wide stops, there wasn't much for him today. What was more interesting were the levels at which price choked, such as the top of the opening hinge, or the bottom of the gap from Friday.

So, yes, technically this has been a trend day. But Jeez!

This is the sort of day that encourages one to increase the width of his stops. Consider carefully before doing so.

 
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  #202 (permalink)
lajx
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Thanks Db for your feedback, is much appreciated as always.

But I have one question regarding to the PA of the last few days or weeks and its behavior, maybe it is related because we are in the summer period?, what is your appreciation from your expertise and point of view regarding to “Sell in May and go away”, I mean not only for the phrase but for the dynamic in this period of the year?

 
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  #203 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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lajx View Post
Thanks Db for your feedback, is much appreciated as always.

But I have one question regarding to the PA of the last few days or weeks and its behavior, maybe it is related because we are in the summer period?, what is your appreciation from your expertise and point of view regarding to “Sell in May and go away”, I mean not only for the phrase but for the dynamic in this period of the year?

Funny you should ask as I just ran across this in my files yesterday:

Yale Hirsch, the publisher of "Stock Trader's Almanac", looked at the last 50 years and showed that if an investor put $10K into the S&P during only the Nov-April period his compound investment would have grown to over $360 K. However, a similar investment over the May-Oct period would grow to only $11.5K.

One could come up with all sorts of reasons, but the most practical has to do with changing one's tactics just for this season then being faced with the prospect of changing them again in September. Whether or not one pursues this course is a personal choice. I don't. But then I'm lazier than most.

 
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  #204 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Stages of a Trader


Six: Mastery

At this level, the trader achieves an almost Zen-like trading state. Planning, analysis, research are the focus of his time and his effort. When the trading day opens, he's ready for it. He's calm, he's relaxed, he's centered.

Trading becomes effortless. He is thoroughly familiar with his plan. He knows exactly what he will do in any given situation, even if the doing means exiting immediately upon a completely unexpected development. He understands the inevitability of loss and accepts it as a natural part of the business of trading. No one can hurt him because he's protected by his rules and his discipline.

He is sensitive to and in tune with the ebb and flow of market behavior and the natural actions and reactions to it that his research has taught him will optimize his edge*. He is "available". He doesn't have to know what the market will do next because he knows how he will react to anything the market does and is confident in his ability to react correctly.

He understands and practices "active inaction", knowing exactly what it is he wants, exactly what it is he's looking for, and waiting, patiently, for exactly the right opportunity. If and when that opportunity presents itself, he acts decisively and without hesitation, then waits, patiently, again, for the next opportunity.

He does not convince himself that he is right. He watches price movement and draws his conclusions. When market behavior changes, so do his tactics. He acknowledges that market movement is the ultimate truth. He doesn't try to outsmart or outguess it.

He is, in a sense, outside himself, acting as his own coach, asking himself questions and explaining to himself without rationalization what he's waiting for, what he's doing, reminding himself of this or that, keeping himself centered and focused, taking distractions in stride. He doesn't get overexcited about winning trades; he doesn't get depressed about losing trades. He accepts that price does what it does and the market is what it is. His performance has nothing to do with his self-worth.

It is during this stage that the "intuitive" sense begins to manifest itself. As infrequent as it may be, he learns to experiment with it and to build trust in it.

And at the end of the day, he reviews his work, makes whatever adjustments are necessary, if any, and begins his preparation for the following day, satisfied with himself for having traded well.

*the knowledge gained through research and testing that a particular market behavior offers an acceptable level of predictability to provide a consistently profitable outcome over time.



(from Bo Yoder, Vad Graifer, Mark Douglas . . . and me)

 
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  #205 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

I've been asked more than once what the point is of including the weekly trend channel when one is preparing for the day and trades a 1m interval.

Today is an excellent example of why.

Unfortunately for NQ traders, the ES has reached the lower limit of its channel and the NQ has 50pts to go, which may account for this bounce. Whether the NQ will actually reach its lower limit while the ES treads water is unknowable, but they aren't always linked, so keep an open mind.

 
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  #206 (permalink)
 Gozilla 
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I was not sure how relevant the hourly channel was with price spending most of the overnight beyond the upper extreme, if price can break higher the next point of interest would be last weeks high and the ONH, probably a little late in the session to be thinking about this though.


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  #207 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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Gozilla View Post
I was not sure how relevant the hourly channel was with price spending most of the overnight beyond the upper extreme, if price can break higher the next point of interest would be last weeks high and the ONH, probably a little late in the session to be thinking about this though.

Take care that you don't search for bunnies.

While channels may have been a factor, remember that few people see them but you. This can be a strategic advantage or it can be a rabbit hole. The story today was failure, and as it all took place long before the open, it was a done deal. The challenge was what to do about it. If AMT were to deal the hand, the choices were limited.

I don't know how this site is about "real-time calls" and "hindsight trading" and "couldawouldashoulda". Chart review is essential, but I don't want to get into the usual arguments about this stuff. If we can, I'd like to review the chart. But I'm done with fighting about it.

 
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  #208 (permalink)
 Gozilla 
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DbPhoenix View Post

I don't know how this site is about "real-time calls" and "hindsight trading" and "couldawouldashoulda". Chart review is essential, but I don't want to get into the usual arguments about this stuff. If we can, I'd like to review the chart. But I'm done with fighting about it.


I think as long as one makes it clear whether it is Sim, Live, Theory, Hindsight or CWS you are reasonably clear to discuss the ins and outs of the days action.

I am sure @Big Mike would be able to give a clearer clarification.

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  #209 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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Gozilla View Post
I think as long as one makes it clear whether it is Sim, Live, Theory, Hindsight or CWS you are reasonably clear to discuss the ins and outs of the days action.

I am sure @Big Mike would be able to give a clearer clarification.

Actually it's just plain ol' chart review. It may be that nobody gives a damn. But at that "other place", one would have to do this sort of thing in secret.

 
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  #210 (permalink)
 Gozilla 
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DbPhoenix View Post
Actually it's just plain ol' chart review. It may be that nobody gives a damn. But at that "other place", one would have to do this sort of thing in secret.

A chart review would not cause any issue, I think most of those that read along have a genuine interest in the discussion at hand.

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  #211 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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Gozilla View Post
A chart review would not cause any issue, I think most of those that read along have a genuine interest in the discussion at hand.

Well, it's all your fault.

The chief consideration is or was our position with regard to the weekly trend channel. Given that, the ranging last week, the failure at 37.50, and the failure again this morning above 41.5, all of which fortunately took place long before the open, the upside didn't look too promising. There may have been entrances before the open, but I'll limit this to the open itself (the lower low after the break of the supply line just before the open was also a plus).



This is a good example of how much are you willing to pay to find out if you're right or wrong. If the trader isn't willing to pay however much that might be, then he has to pass.

If the failure above 41.5 had taken place after the open, trading it would have been more difficult for some, easier for others. This isn't so much a question of did you take it or not, but what were you looking at? If you missed it, why? What can you look for the next time?

The next trade is simpler and easier:



Tomorrow, of course, will likely be boring as your in-law's travel photos.

 
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  #212 (permalink)
 Gozilla 
Aberdeen, Scotland
 
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I have always struggled with entries into trends that are already under way, I have always thought if I am not in at the start I am chasing (mainly due to being chewed up once too often), using those retracements/springboards that one should expect during a trend a trader could open a position or add if they feel confident enough about what is happening.

The lower extreme of that hourly seemed to hold up but the upper extreme has been broken a bit much now, above that was last weeks high that offered an opportunity but that was a little too early for me.


DbPhoenix View Post
Tomorrow, of course, will likely be boring as your in-law's travel photos.

Unfortunately my time is up, I would have liked to have seen if price could get to the lower extreme and what would have happened next as it happened, but, there's always next time .

Gozilla.

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  #213 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

In this case, the trend started in the middle of the night, so being in at the beginning was not an option, except for those in Indonesia. Or insomniacs. And entering at the open was definitely a testicular trade. But, no, jumping in and hoping for the best is not a prudent tactic. I prefer to wait until price begins ranging (look for the range). Granted that can seem to take some time, but in this case it was only twenty minutes. It only seems like hours.

As for the rebound shown on the hourly, I shouldn't have shown it as it had nothing to do with the trading before 1100, after which I'm done. I never beat myself up for those. Otherwise I'd be stuck in front of the computer all day long, and there's just no way.

 
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  #214 (permalink)
 Gozilla 
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Find myself with a 2 day reprieve, Price got reasonably close to the lower extreme in yesterdays session but was unable to maintain the move lower, Ideally I would like to see it hit that lower extreme and see how it behaves compared to the last time it was at the lower extreme in an uptrend.

I might be overkilling it with the lower lines on the daily chart, but I thought with them being large swing points they will stick out to anyone trading this time frame and thus price could struggle at those levels offering opportunities in the process.



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  #215 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

The SLA, as I may have mentioned once or twice , was written for beginners and damaged traders. It is a primer. However, the effort to explain can lead to what one might call a bit too much detail (try "exhaustive"). For those who already understand it, the detail may be interesting and even lead to further Ah-Ha moments. But for those who are new to it, the detail may elicit instead a wtf?.

Therefore, I've rewritten the SLA/AMT in a simpler form (in the original, I said that the SLA was as simple as I could make it; I was wrong). Discussions which may have been interesting but were not essential have been removed. Extraneous charts have been deleted. The rest have been combined. This makes the whole thing 19p long, a handy pocket size, something you can read at the dentist's office or on the bus.

I hope beginners will have an easier time of it with this. If not, I'll make further changes. The advantage of digital books is that they can be revised, updated, "fixed" at any time at no cost other than time.

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  #216 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


Gozilla View Post
Find myself with a 2 day reprieve, Price got reasonably close to the lower extreme in yesterdays session but was unable to maintain the move lower, Ideally I would like to see it hit that lower extreme and see how it behaves compared to the last time it was at the lower extreme in an uptrend.

I might be overkilling it with the lower lines on the daily chart, but I thought with them being large swing points they will stick out to anyone trading this time frame and thus price could struggle at those levels offering opportunities in the process.

It may not matter. When I opened up my program, the first thing that jumped out at me was a giant frigging hinge, and we're dead center.

I may spend the day in the garden.

 
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  #217 (permalink)
lajx
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  #218 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Remember that you can always take a day/week/month off if the market does not look right to you. You don't have to trade just so you feel that you are working. I take many "breaks" when things don't look right to me. In fact, numerous times I will do all my research, get up at 5:00 AM and be ready to execute my game plan, only to find out that what I was planning on doing was not doable, for whatever reason, i.e. missed an entry, big gap up/down, bad vibes, etc.

When these conditions present themselves, I will call the local golf course, get an early tee time, and leave the trading desk. I do that, because I know that if I stayed around when I am in the wrong mental state of mind, I could make costly mistakes. I'd rather hit a white ball and get frustrated beyond belief scoring in triple digits than stick around when things don't feel right.

The beauty of the stock market is that there are always new opportunities to make a trade.

-- Tony Oz

 
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  #219 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

There is a tendency among some/many/most of those interested in this to apply it to what they already do rather than start over. This is not unlike using layer upon layer of makeup to cover up zits rather than get rid of the zits. Or using gobs of sour cream to cover up the crack in the cheesecake rather than start over and do it right to begin with. This is most obvious when it comes to the desire to trade ranges.

The past two days are instructive with regard to trading ranges. I've said that the SLA is not appropriate for trading ranges and the recent action shows why. Even though the correct entry on Monday was at 0300, the entry provided at the open was clean as well, as was the follow-on entry off that range I posted earlier. The rebound was okay up to 4400, but not comparable to the initial downmove. Yesterday, of course, was slog. The trending move, therefore, was the easy one as well as being the simplest. The ranging moves, not so much.

Whether or not one trades ranges appears to fall under the category of Advice. However, the SLA takes care of this: if one has two successive losing trades, one long and one short or vice-versa, he stops as these are signs of impending ranging or chop. He then waits until price exits the range or the chop, whichever it turns out to be. The trader does not just keep slamming himself against the glass. It doesn't matter how many lines the trader draws or how many patterns of behavior he looks for. A range is a range. A trend is a trend. The best option is to back away and watch.

Eagerness to trade supplants deliberation.


 
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  #220 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

There are two ways for us to reach the lower limit of the weekly channel. One is to drop down to it and bounce off it. This usually results in the sort of clean reversal that makes for an easy trade. The other is to just sit here like a bump on a log and wait for the lower limit to reach us, and push, which it will do in three to four weeks. And while the idea of hanging about at this level for three or four weeks seems ludicrous, we have in fact been hanging about at this level for three months.

Replay will help prevent one from getting rusty.


 
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  #221 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

There's been some confusion lately about what constitutes a "trading opportunity". The daytrader, by definition, is looking for and at opportunities that are more immediate than those sought by "swing" traders. However, when developing tweaked or new tactical sets, even the daytrader will zoom out and take a longer-term view. For those who have at least some experience in backtesting, these explorations are conducted as a matter or course. However, those who do not have this experience regularly see opportunities while backtesting, i.e., in hindsight, that never existed in real time. This can and usually does -- as one might expect -- mess one up.

Beginning with the weekly chart above, this is where we are and have been:



If one sets aside the SLA for the time being and focuses on AMT, here is where the most recent trading opportunities have presented themselves. However, those TOs (forgive the acronym; it's purely temporary) exist only because the line was already there, and had been in place for over a year. Obviously, if the line weren't there, the TO would not exist, at least in the context of AMT.



TO #1 was legit because it reversed off the trendline. It did not, however, make a higher high. TO #2, however, did make a higher high, and we'll start there (you'll see why in a moment).



After rejecting the trendline, price makes what is in hindsight a higher low. However, in real time, this is not a legitimate higher low until it's been tested (A), price has reached the immediately-preceding swing high (B) and exceeded it (C). At that point, you've got your higher low. As you do not have your higher low until that point, it is not a trading opportunity.

Once you get to C, you can plot a tentative trading range, shown by the arrows:



If one extends those arrows, he gets upper and lower limits. He then looks to these for TOs (the shaded part hasn't happened yet; stay with me):



Now we can get down to business. 220pts is a nice range. 220pts presents TOs. 220pts is not chop. However, the first TO does not present itself until "3". After the reversal, one cannot expect an immediate trip to the lower limit of this range. If one understands the dynamics of AMT, he cannot expect anything past a return to the median of the range. This does not necessitate the use of SLA, but it sure comes in handy.



Once price reaches the median, it waffles around for almost two weeks, 60pts up and 60pts down. Are there TOs here? Perhaps through the SLA. As for AMT, not really. The TO was at "3".

Now we test the upper limit again, at "4". As the line was already here, this represents the second TO. Price reverses again and travels back toward the median. This time, though, it plunges though it. The trader who's already in doesn't have to think about this one. The market gives him a freebie. However, price does not reach the lower limit until it comes back to the median, after which it drops to the lower limit at "5". Whether "5" represents the third TO or the fourth depends on whether or not one exited his trade when price failed to reach the lower limit after the break through the median and whether or not he then entered a short at the test of that median. Or maybe he held onto his short from "4" and added to it when price tested the median at "6". Regardless, all of that changes when price hits and reverses at "5".

But this isn't about reversals and retracements and trade management and tactics. This is about trading opportunities, and the point here is that most of the "trading opportunities" that many people see in hindsight charts don't exist because they didn't exist at the time, i.e., the trendlines and range limits off which many of these perceived trading opportunities seemed to play were not there at the time; they exist only in hindsight. Even though there appear to be tons of TOs here, there are only four: "1" because it is a reversal off the weekly trend channel, "2" and "3" because they are reversals off the upper limit of the range (which by then could have been drawn off "1"), and "5". The rejection of the median at "6" is a trading opportunity only if one has a protocol for trading at the median. The rejection of the lower limit at "5" is no help because that occurred after price had already rejected the median, all on the same day. But even if one includes "6", that amounts to a total of five trading opportunities, four of which are low-risk and one of which is comparatively high.

That doesn't seem like much for more than three months, but given that price behaves differently in a range than it does in a trend (and here I'm not including trends within ranges; I'm focusing on behavior), the fact of this range must be considered when trading within it, whether one wants to call those trips from one limit to the other "trends" or not. One can call them whatever one likes, but it should be clear by now that trading within a range presents a different set of challenges than trading an unencumbered trend.

Therefore, when one finds genuine trading opportunities, in this case 4 to 5, make the most of them, even if daytrading. These trends and ranges are your compass, and the limits of them are your destinations.

 
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  #222 (permalink)
lajx
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13/07

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  #223 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Yep.

 
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  #224 (permalink)
 TheTradeSlinger 
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@DbPhoenix,

Can you discuss some AMT principles as related to the current conditions in crude oil?

I think the clearly defined range lends itself well to AMT study.

Crude Oil 60m:


Crude Oil Daily:

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  #225 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

I got into this in January as I was interested in buying stocks when the time was right, so I'm not unfamiliar with what's been going on.

Briefly, I noted back then that the downtrend had been broken, and that the effort at a lower low at the end of January failed, suggesting an eventual upside breakout. Then the last swing high was exceeded the first week of February and price reached 54. This called for a buy above 55 or a short below 42. Given that virtually all the activity was taking place in the upper part of the range, I prepared for an upside breakout. I anticipated that it would take place in April because the last time this happened, the bottoming process took three months. If this one took three months, price would move in April.

Eventually, price reached 62.5 and began ranging again. This was evenly distributed until the second week of June, at which point price busied itself in the upper half. One might have looked at this as another accumulative base, but it didn't work out that way. Perhaps that was in fact what traders had in mind, but life happened while they were making their plans, which may account for the rapidity of the drop from 60 to 50. There's nothing like surprise to move price.

So now we're trading at a level that's halfway between the March low and the May high. Does this represent "value"? Maybe. But seven days isn't much, not after all these months, so this isn't where the volume is. Not yet. Looks to me like indecision more than anything else, particularly as it's so compact. Ordinarily I don't like trading means and medians because they tend to be too sloppy. However, this isn't really either but rather the midpoint. I know the differences are subtle, but this appears to be more a test of strength/weakness than a search for value. As such, bracketing it and trading it as a range breakout one way or the other might be something to consider, though the ranges above and below will present obstacles.

As for the 60m, as this is ranging rather than chopping, I see no reason not to trade it as such if that's what one wants to do and he has a plan for it and he's good at it. The moves are reasonably clean, but as soon as this becomes apparent to everyone, it will stop, and price will either chop or exit the range.


 
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  #226 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

About Back-testing, Hindsight Bias, Curve-Fitting,
and Putting The Cart Before The Horse


Beginners may view the SLA as a "turnkey" approach, ready-to-go right out of the box, no mixing, no rising, just shake and pour.

Not-so-beginners, given all the money and time they've wasted on DVDs, courses, software, software plug-ins, books, trading rooms, and whatever else, are less likely to do so. Before wasting another minute on something that may well turn out to be crap, they want to do a little testing. Back-testing. And that's understandable. And fine. Even though the SLA has already been back-tested (and forward-tested and simtraded and all the rest of it). Trust but verify.

But struggling traders were often out sick, or standing behind the door, when the subject of back-testing was covered. Otherwise they might not be struggling. So if one is intent on back-testing this, the following is something of a brief primer – or at least brief as possible – on a major principle of how to back-test: keep the horse in front of the cart.

When back-testing, the initial and natural impulse is to look back. And when looking back, one might see a chart such as this, depending on how far back he goes:




He might even draw a trendline under all this, beginning with the start of the trend in '09, then a channel, after which he'd see what appear to be several trading opportunities. If only he'd bought then.




Trouble is, those "buying opportunities", with two exceptions, never existed because the line off of which they appear to be bouncing was never there at the time.

(to be cont'd)

 
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  #227 (permalink)
Iamdom
Toronto canada
 
 
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Horizontal lines never change or have to be redrawn. Those trading opportunities were there if you were paying attention to horizontal support and resistance. A ten year trend line can in fact be only a few weeks old and would have been redrawn a hundred times. If price appears to be bouncing off a sloping line it's just a coincidence, after all they are always drawn after the fact. Not that I disagree with your approach to tracking price or drawing channels and I know that you have said this much yourself.

 
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  #228 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Now back to our regularly-scheduled program:

Let's go back to that reversal bottom and see what the landscape looked like then:




The first potential trend is plotted as soon as you get two swing lows, with a parallel line across the intervening swing high. But instead of a bounce, which might have been a buying opportunity, the line is broken, at which point we have to wait for a reversal, a range, or a higher high. If we get the last, we can rotate, or "fan", the trendline to slide underneath what will be a swing low, but only after the higher high, if it ever appears, which it does, in July:




A higher high is plotted and the trendline can be rotated, though for the purposes of illustration, the "new" trendline is green and the old one in red is kept for comparison. But, again, there's no bounce; price again breaks this line. This time, however, there is a difference: rather than continue its move upward, price turns sideways rather than re-enter its channel. Is this a break? Maybe. Maybe not. Depends on how one defines "break". Yes, price broke the trendline. But it did not sink below the last swing low. So, unless one is exceptionally jittery, he can justify staying in. The beginner would. The struggler? Maybe not.




Will price make a higher high? Will it not? Stay tuned.

(to be cont'd)

 
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  #229 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Yes! once again a higher high is made and the line can be rotated against the next higher swing low in January. Could one have bought either of those tests in May or July '10? They didn't exceed that same swing low which made the trendline possible. Would he have done so? Maybe. But neither of those trades would have had anything to do with a trend channel. Range, yes. Channel, no.




And price eventually makes a new high in October, enabling us to fan the trendline yet again:




But now we have an interesting new element. We're in the habit of looking for those first two swing lows so that we can draw a trendline and the intervening swing high so that we can draw a channel. And this one, though it looks somewhat like a tongue in a giant price lizard, looks like it might amount to something. But, alas, no. Instead of bouncing off the trendline, price hugs it and eventually breaks through it. And it goes sideways for awhile before falling out of the range it had been creating. Is this a reason to exit? Again, it depends. Yes, price dropped below the last swing lows from March and June. But look! It held at the last swing high from the previous April. In or out? Go or stay?

Decisions, decisions.

(to be cont'd)

 
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  #230 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012




In the meantime, if we choose to hold on, there is nothing to do but wait. Again, price will either continue to range sideways, it will reverse, or it will eventually make a higher high.

And eventually, as if you didn't know (but there's still an element of suspense here, isn't there?), price does make a higher high and we can rotate the trendline again (I've been dropping the older lines as they now serve no purpose other than clutter). Note, however, that there is no bounce; the line isn't drawn until after the higher high is reached in January; at the time, there was no line at all.




And, lo, we finally settle into a trendline and channel that last for a while. A good, long while:




And there are actually a couple of tradeable bounces here that took place after the channel was drawn, one in April '12 and one the following November. Which isn't bad. But not exactly an embarrassment of riches.

(to be cont'd)

 
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  #231 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

You know by now, of course (2015), that the failure of price to reach the lower limit of the channel in June '13 presaged a more severe upmove through the upper limit, after which one could draw a trendline and channel going back to the June low, a channel in which we remain today. But none of that would have compelled you to go long in June.

Looking at all of this in the rearview mirror, June was not the buying opportunity it now appears to be, nor was March '14, nor April '14 – those three points were required to draw the trend channel that we've been working with since. And as the channel didn't exist at the time, there was nothing for price to "bounce off of". Rather the first opportunities don't appear until August/September and October. At least within the context of this channel.




If one backs up even further, however, the landscape changes. Rather than looking for a short, we find that price appears to be exiting what was then the current channel, and long trades of breakouts are more likely:




In real time, December '13 would look like an overbought condition, and a short would be called for. This would be stopped out quickly, and given the subsequent higher high, another short opportunity would not come up until March/April. This would also be stopped out and price would exit the channel again. Given that price makes a higher high in June, the more likely course is a long, which could be taken then or in August, and as we now have the necessary swing lows and swing high for a trend channel dating from June '13, we can short the rejection of it in August/September, or go long when price tests the lower limit of it in October, which is also a test of the upper limit of the previous trend channel.



(to be cont'd)

 
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  #232 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

So what good is all this if the bounces aren't bounces in real time and the trading opportunities which seem to have been there really weren't? If one backtests properly, if the current trading environment is approached by entering the pool at the shallow end, step by step, rather than jumping in the deep end with both feet, there are sufficient opportunities to be found in the present, not to mention the future. But the present means little without context, the past.

Let's back up a bit, to 2007:




By early September, one would have had the choice of leaving his supply line alone or drawing a more severe one that followed price downward toward November:




The choice is whether to hold on and exit only when absolutely necessary or exit sooner after the more severe supply line is broken in December. Volume can help here. Note how active trading is from September through November. And one needn't even know in real time that this is climactic. One needn't exit his short just because a line is broken. One needn't even draw it. He can hold onto his short until the low is tested is March, on less activity, then buy the reversal. He can even wait and buy the retracement in May. Or July. He needn't wait until his earlier supply line is broken in September. Unless he's stubborn.




If one had bought the reversal, or the first retracement, or even the second retracment, he would never have had good reason to exit. He would still be in today what he entered six years ago. This is not, however, one of those Oh If Only I'd Bought Apple In 1983 nostalgia fests. 2009 is gone, as is 2007. And 2003. And 2000. But there are plenty of subsequent opportunities to enter and make money even if one enters the trending environment long after the opportunities such as those presented in '07 are well in the past, and these opportunities will most likely have to do with channels.

If one knows how to monitor the progress of the balance between demand and supply, with or without the help of demand/supply lines, he will be in a much better position to take advantage of these opportunities than those to whom price behavior is a total mystery. Back-testing helps one to understand how this trending-balancing act works, which is at least to some extent what back-testing is all about, not just a wallow in couldawouldashoulda. And until the day comes when price exits the current channel, one way or another, trading the upper and lower limits is the only course that makes any sense, at least if one is trading a mean-reverting instrument. That is, it's the only course that makes sense unless one is trying to trade a channel that isn't really there.

 
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  #233 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


 
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  #234 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


 
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  #235 (permalink)
WhyCough
Newark, NJ
 
 
Posts: 2 since Jun 2015
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Since this is formation is not " filled with price", it's not considered a hinge. Correct? What would you call it?

 
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  #236 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


WhyCough View Post
Since this is formation is not " filled with price", it's not considered a hinge. Correct? What would you call it?

There's the perfect hinge, the semi-perfect hinge, and the hinge that isn't a hinge at all. This is a semi-perfect hinge, which is the sort you'll run across often in a less-than-perfect world.

What matters is not the shape but the behavior. The range was established yesterday afternoon, then price made a series of higher lows until midnight, at which point traders attempted to make a higher high and failed to do so. All of this behavior provides information.

Then, having failed at that, price falls but makes an even higher low. Traders try to rally again, but fail again, creating another lower high. All of this behavior creates the hinge, which illustrates the efforts of buyers and sellers to determine fair value.

We've already fallen out of it, but there's been no drama. Unless and until the ES moves away from 20, I doubt the NQ will be able to mount an attack on 4700. We'll soon see.

 
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  #237 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Some people wonder what I think about and look for before and during the trading session, poor things. It starts with a post I made not long ago about learning how to draw an apple (you can probably find it with Search). But if the market is the territory and the plan is the map, there are signposts that I watch for that give me a pretty good idea what's going on, what's on traders' minds.

For example, take the chart I posted earlier this morning. The signposts here are the upper and lower limits of the hinge along with the apex:




Now let's look at how it all unfolded at and after the open using the 1m chart.

First, price reached and reversed at 60. After it reverses, there's plenty of time to determine the halfway level of the downmove. This is a signpost that will help gauge strength and weakness:




Price then rallies all the way to the apex of the hinge:




When it does, we can determine the halfway level of the move up to that apex:




It should come as no surprise that the car should pull over at this level and that everyone should get out and stretch their legs.

Then price resumes its journey and pulls over again at the opening low:




We then idle for almost an hour. Then it's time for lunch.

 
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  #238 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Then it's back in the car and we head north:





 
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  #239 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

It appears that the news from AAPL was not good, and as AAPL is the most heavily-weighted stock in the NDX and the second most-heavily-weighted in the SPX, it's not likely that we're going to reach the upper limit of the weekly trend channel (got close, though ). We'll see how things look in the morning.

Edit: Reviewing the most-heavily-weighted, only four in the NDX are showing strength and only one in the SPX. I let price drive the wagon, but it's interesting to find out where all that mud and potholes are coming from. Greece, for example, put us on a treadmill for days.

 
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  #240 (permalink)
Gring0
Toronto
 
 
Posts: 8 since Jun 2015
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There's a SL on NQ from 11/27 and 03/01 tops and it is turning out to be quite interesting to see price stall there again.

Gringo

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  #241 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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Gring0 View Post
There's a SL on NQ from 11/27 and 03/01 tops and it is turning out to be quite interesting to see price stall there again.

Gringo

Leave it to you to come up with the sophisticated stuff

I hope to see you posting your group and sector stuff here. Given the behavior of the Dow and the non-participation of the ES in all this, there should be some interesting cross-currents in the coming weeks.

 
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  #242 (permalink)
WhyCough
Newark, NJ
 
 
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DbPhoenix View Post
Leave it to you to come up with the sophisticated stuff

I hope to see you posting your group and sector stuff here. Given the behavior of the Dow and the non-participation of the ES in all this, there should be some interesting cross-currents in the coming weeks.

I think the Russell not following the NQ is a nice "tell".

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  #243 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

In case it's not obvious:


 
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  #244 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


 
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  #245 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Just checking to see what the neighbors are doing.

Interestingly, this is a mirror of the change in the uptrend angle that the ES took two years ago. This is not to say that the ES can't rally, but this is also characteristic of the topping process.


 
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  #246 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

The Dow, of course, is in even worse shape.

The dashed upper limit is drawn as a result of a supposition that that first swing high was an overbought condition, given that price settled into a steady, lower upper limit thereafter. Either way, the Dow is weak, and has been for months.




As WhyCough pointed out, these are "tells".

 
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  #247 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

the Danger Point



Never make a commitment until you have decided, in advance, where the danger point exists in that stock*.

–Richard Wyckoff

*or futures contract or bond or option or ETF or . . .



Danger Point. Sounds like something by Tom Clancy. Or Michael Connelly. Richard Wyckoff coined the term nearly a century ago to call attention to that point or level or "zone" at or in which the trader would be in "danger", i.e., in danger of losing money, the level at which the market would poke him in the ribs and suggest that he might just possibly – or probably – be wrong about his trade. The purpose of this construct is not to demonstrate to the trader what a loser he is but to keep him from becoming one.

When one enters a trade, he quite naturally expects price to move in a certain direction, though how far is pretty much unknowable. If price instead moves in the opposite direction, this in itself may not doom the trade, but if the trader examines his reasons for having entered the trade in the first place, he will also be able to determine the danger point. For example, if the trader sees what to him is a double top and enters a short just below that double top, his danger point is that level just above the double top. If instead of falling price rises and makes a higher high, the trader can't escape the fact that he was wrong about the double top. The chief consideration, though, is to prevent the trader, via a stop, from having to suffer simply because he is experiencing an unavoidable loss. The construct also applies to the opposite: a double bottom, below which is its own danger point.

Danger points also apply to other commonly-used SLA/AMT entries: above or below the 50% reaction/rally level of a previous up or downmove, above the upper limit of a range or trend channel, below the lower limit of a range or trend channel, above a lower high, below a higher low, above or below the apex of a hinge.

Given that losses are inevitable and unavoidable, placing hard stops at or just outside the danger points does not prevent the loss itself but does prevent it from becoming much worse than it would otherwise be.

Should it appear that your commitments are started right and your stops reasonably well placed, then the frequent catching of stops should be taken as a warning that you are not operating in harmony with the trend of the market. Thus, if you persist in selling stocks short in a rising market you are bound to expose your stops to the danger of being touched off on bulges. Conversely, if you repeatedly buy on what you believe are reactions only to discover that your stops are consistently caught, this should be taken as an indication that you are operating on the wrong side of the market — the trend is down and those presumed "reactions" in reality are waves of liquidation. Such errors of judgment sometimes lead students to abandon the use of stops. Nothing could be more dangerous. (Wyckoff)

Danger points, however, also serve an unexpectedly valuable function to the trader who prefers retracements. A common question asked by such traders revolves around "Where (exactly) do I enter? Do I enter a tick away from the top/bottom of the retracement? Two? Three? More? Do I enter a tick away from the highest/lowest inside bar? Two? Etc?" If, however, one instead looks at danger points and enters N ticks away from them, the fact of the retracement is there, but the details of its structure become irrelevant. This tactic also avoids the press of waiting for a retracement to complete itself before transmitting the trade, only to find out that there isn't enough time to do so. This tactic is also useful in modified form when entering reversals, the advantage here being that the danger point is known well in advance due to the structure of the range.

And if price keeps running over your stops like a rogue truck?

After you have traded for a while, if you find that your stops are being caught too frequently, it will mean that you are not careful enough in starting your trades. Thereafter decide to use more discrimination. Refuse all but the best opportunities. Wait for them. Take your positions as close as you can to the danger points, as shown on your charts or on the tape. Place your stops [at or just beyond the danger points]. Study your mistakes and profit by them. Know every minute why you are starting a trade, why you are holding it, and why you should close out. (Wyckoff)

 
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  #248 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

If you look at every top we’ve lived through, they each have certain ingredients -- internal market deterioration; rationalizations and lulling; using up buying power even though you used to know better; and waiting and waiting for the bell to go off, which proves in hindsight to be rather more of a little tinkle that you thought you heard but weren’t sure enough of to act upon. The one eternal aspect of every market top is that it occurs before we’re ready for it.

-- Justin Mamis

 
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  #249 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Someone came by the office the other day to try to sell a particularly sophisticated computer software program -- at $1,900 per month. Up on the screen went what the salesman thought was the most useful, or eye-catching, or maybe even terrific, part of his demonstration. "It compares," he launched his pitch enthusiastically, "the this with the that, and down here you can see the relative strength whatzis compared to both of them" and so on. There may have been half a dozen windows on the screen for various comparisons all at once. Seeing me standing there with my arms crossed on my chest, he hesitated, and then finally blurted out: "Isn't that terrific?"

"Now what do I do?"

"What do you mean?"

"I mean, having looked at all those nice pictures, how does it, where does it, tell me something useful?" Then I felt I'd better elaborate. "Do I buy the relative strength? Or do I decide to buy the weakness instead, on the theory it'll catch up? What do I do? maybe you've got a button to push that'll give a signal."

"Oh, sure," he said, warming up again from that bewilderment. He threw another set of windows and zigzags up on the screen, and demonstrated that one roller coaster had just started scooting across its zero line. "There's the action signal for you."

"But I don't want that signal," I said. "How many inputs did it take to get it across that line? I want the message that told some guy to buy back down here as the roller coaster was coming to the low of its ride and arcing upward. He's probably rubbing his hands with glee to sell to your guy who is going to buy because of your signal."

-- Justin Mamis

 
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  #250 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Going back over old posts to determine whether or not I still agree with myself (I often don't), I got a kick out of this:


 
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  #251 (permalink)
lajx
Bogotá
 
 
Posts: 69 since Apr 2015
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Today I felt I let too much money on the table in any case here is my attempt

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  #252 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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lajx View Post
Today I felt I let too much money on the table in any case here is my attempt

Depending on what one wants, perhaps the more important events/levels this morning were the tests of the lower limit of the 5m pre-open range at 0930 (0830 on your chart) and the test of 4510, which is the halfway level of the upmove from the 8th to the 19th. As for the latter, that may not be the only reason price bounced off 4507, but one doesn't have much time to ponder the whys in real time.

 
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  #253 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012




. . . retail investing has exploded in China. Between June 2014 and May 2015, 40 million new brokerage accounts were opened in China, and many of them invested in stocks with borrowed money.

Shades of 1999.

So markets change?

 
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  #254 (permalink)
 Gedman 
Seattle, Washington
 
Experience: Intermediate
Platform: Sierra Chart/SC Data
Broker: Interactive Brokers
Trading: ES
 
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Thanks: 32 given, 34 received

This is off topic and I apologize for that in advance.

db, I've just begun reading 'The Foresight Thread' at ET. What a helpful, well laid out, logical piece of work it is. Clearly, it took a lot of work and I want to thank you for it. For whatever reason, I was unable to post to that thread, so I'm saying this here. Actually, in many ways, through a variety of threads, posts and documents, you've helped me quite a lot. I appreciate it. - I'm reading this thread as well, though way behind (the cares of life push in), and am getting a lot out of it.

I also want to say thank you to Fortydraws. So much of what he has contributed to the forums has connected for me. I'm delighted for his success and grateful he takes the time to share his thoughts.

Best to both of you,
Ged

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  #255 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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Gedman View Post
This is off topic and I apologize for that in advance.

db, I've just begun reading 'The Foresight Thread' at ET. What a helpful, well laid out, logical piece of work it is. Clearly, it took a lot of work and I want to thank you for it. For whatever reason, I was unable to post to that thread, so I'm saying this here. Actually, in many ways, through a variety of threads, posts and documents, you've helped me quite a lot. I appreciate it. - I'm reading this thread as well, though way behind (the cares of life push in), and am getting a lot out of it.

I also want to say thank you to Fortydraws. So much of what he has contributed to the forums has connected for me. I'm delighted for his success and grateful he takes the time to share his thoughts.

Best to both of you,
Ged

You're welcome. You should understand, though, that as the epochs roll by, I find ways of making things simpler, finding things to throw out, finding ways of explaining certain concepts and tasks better, so you may actually be making things more difficult for yourself by studying material that's "older". I never really know whether or not something is going to be clear until I put it out there and see what people do with it. As a result, I often find that it wasn't clear at all, so it's back to the legal pads to rewrite, sometimes to start over.

So I suggest that you stick with the latest and greatest and ask questions. That'll save you from delving into stuff that's past the sell-by date.

 
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  #256 (permalink)
 Gedman 
Seattle, Washington
 
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DbPhoenix View Post
...I find ways of making things simpler, finding things to throw out, finding ways of explaining certain concepts and tasks better, so you may actually be making things more difficult for yourself by studying material that's "older". I never really know whether or not something is going to be clear until I put it out there and see what people do with it. As a result, I often find that it wasn't clear at all, so it's back to the legal pads to rewrite, sometimes to start over.

So I suggest that you stick with the latest and greatest and ask questions. That'll save you from delving into stuff that's past the sell-by date.

Thank you db.

Everyone learns - processes information - a little differently. What makes perfect sense to one, may be absolutely unintelligible to another. That said, I have felt that your more recent threads are really excellent - no aspersion intended for the older threads.

Which threads do you consider to be 'the latest and greatest' at this point in time (and which websites are they located on)?

It's great to see you here on BigMikes. This has traditionally been a little more serious trading site, in certain respects, than some of the others. I certainly hope it remains such.

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  #257 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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Gedman View Post
Thank you db.

Everyone learns - processes information - a little differently. What makes perfect sense to one, may be absolutely unintelligible to another. That said, I have felt that your more recent threads are really excellent - no aspersion intended for the older threads.

Which threads do you consider to be 'the latest and greatest' at this point in time (and which websites are they located on)?

It's great to see you here on BigMikes. This has traditionally been a little more serious trading site, in certain respects, than some of the others. I certainly hope it remains such.

You may be aware of the "challenges" I had years ago persuading people to read Wyckoff. But they were nothing compared to the challenges I faced persuading people to open and maintain journals. However, rather than make a short story long, I'll just say that I underestimated the extent and levels of fear in those who were struggling and I also underestimated the amount of misinformation they had crammed into their heads (age is a disadvantage here, as I come from an era long before the internet, so some of the modern obsessions were puzzling at best). Learning something new without "forgetting" what one knows that isn't so, much less re-wiring oneself, is a formidable task, particularly when grappling with fear all the while.

What appears to have the greatest effect is to use the SLA/AMT as a frame and to explore everything else -- support/resistance, trending/ranging, risk, management, "setups" -- by placing it into that frame. If nothing else, this aids focus, which seems to be a common difficulty. Therefore, I suggest you begin there and use it to re-evaluate what you know, or think you know. After working with it for a while, you may find that Section 7 of Wyckoff's course makes a great deal more sense, even on a different level (which is after all where the SLA came from).

As for "which websites", there's little interest in this elsewhere. Those few who were interested in it are now here. And even if you drag yourself through older threads, 95% of it is repetition, and life is short. Given the simplicity of this, there's no need to spend years banging away at it unless one just can't live without his indicators.

 
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  #258 (permalink)
 TheTradeSlinger 
Huntington WV
 
Experience: Advanced
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Trading: ES, CL
 
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DbPhoenix View Post
What appears to have the greatest effect is to use the SLA/AMT as a frame and to explore everything else -- support/resistance, trending/ranging, risk, management, "setups" -- by placing it into that frame. If nothing else, this aids focus, which seems to be a common difficulty.

Db,

I am exploring exactly this in my trading and studying right now.

If anyone is interested, I will be exploring SLA/AMT combined with other ideas (S/R, "legs", accum/distr) in my journal here on futures.io (formerly BMT).

SLA seems to help me stay in winning trades. It gives me a framework to use (line broken? No? Stay in.)

Follow me on Twitter Visit my futures io Trade Journal
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  #259 (permalink)
Schaefer
Ft. Lauderdale, Florida/USA
 
 
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TheTradeSlinger View Post
Db,

I am exploring exactly this in my trading and studying right now.

If anyone is interested, I will be exploring SLA/AMT combined with other ideas (S/R, "legs", accum/distr) in my journal here on futures.io (formerly BMT).

SLA seems to help me stay in winning trades. It gives me a framework to use (line broken? No? Stay in.)


Good thing, you said that here on futures.io (formerly BMT), and was not able to post on ET. The hypocrites there would have labeled you as a "troll", and come down on you with vengeance.

Schaefer

 
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  #260 (permalink)
lajx
Bogotá
 
 
Posts: 69 since Apr 2015
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At this point a range could be define, right? zone of TO`s?

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  #261 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
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lajx View Post
At this point a range could be define, right? zone of TO`s?

This is pretty much what I was working with, though I began with that last swing low on the 24th.

 
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lajx
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lajx View Post
At this point a range could be define, right? zone of TO`s?

Today I could not trade because I had some familiar commitments in any case when I opened the plattform I just saw the TO and take it, here is the result



The long after the break of the SL was not taken because I went for lunch

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Gring0
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Price has dropped for 5-6 days. The bounce came from the 50% level around 4507 area. Notice also that the S/R from the previous range is also in the vicinity. It is profitable to look at the larger bar intervals (weekly/daily) to get the scope of what's happening.

I am expecting price to go up towards the LSH. Failure to get to the LSH and a drop would mean retracement failure (a reversal).

Now price has had a BO and this recent drop has been retracement of that BO. The current rise if it continues would be a continuation of price in the direction of BO after the RET back to BO level.

The rise after the trip back to the BO level which is continuation in the direction of the BO is also a RET in case price fails to make NH above the LSH and changes direction to the downside . And I know some of you already hate me for writing this!

If really confused, then re-visiting the SLA document might not be a bad idea.

Gringo

Edit: I was talking in terms of daily bar intervals. Although this is an intra-day thread the idea is still the same.

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 TheTradeSlinger 
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Gring0 View Post
I am expecting price to go up towards the LSH. Failure to get to the LSH and a drop would mean retracement failure (a reversal).

Gring0, what is your criteria for a failure to get to thr LSH?

Would you recommend just taking the set ups as they come and not anticipating a failure?

What I mean is, eventually one of the SLA/AMT set ups will capture the "reversal" if it does come.

I hope what I'm trying to say is clear, I'm trying to work on balancing prediction/anticipation/reaction in my own trading now, and this situation/your post really brings it up for me.

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 DbPhoenix 
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Gring0 View Post
Price has dropped for 5-6 days. The bounce came from the 50% level around 4507 area. Notice also that the S/R from the previous range is also in the vicinity. It is profitable to look at the larger bar intervals (weekly/daily) to get the scope of what's happening.

I am expecting price to go up towards the LSH. Failure to get to the LSH and a drop would mean retracement failure (a reversal).

Now price has had a BO and this recent drop has been retracement of that BO. The current rise if it continues would be a continuation of price in the direction of BO after the RET back to BO level.

The rise after the trip back to the BO level which is continuation in the direction of the BO is also a RET in case price fails to make NH above the LSH and changes direction to the downside . And I know some of you already hate me for writing this!

Gringo

I love it when you talk dirty.

Those who are just flirting with this before asking it out for a date should focus on the behavior and remember that these levels are nothing more than indications of strength and weakness, or, if one prefers, will and the lack of it.

Bouncing off the halfway level is an indication of strength. The failure to get back above the upper limit of the daily range is an indication of weakness. Those who'd rather wait until traders decide what they want to do could be forgiven for doing so. And those who were watching price in real time this morning saw an enormous amount of testing, probing, hesitation, reluctance to take a position.

In these situations, it is absolutely imperative that the trader conduct thorough reviews of the day's activity, whether he traded or not, as well as thorough prep for the next day. If one spends the necessary time on prep and review, the trading pretty much takes care of itself.

 
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lajx
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Context 29/07

Trades.


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 TheTradeSlinger 
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Pre-market range for ES:



and for NQ:


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Gring0
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Has anyone else noticed ES and YM taking leads on up moves? NQ catches up but has a delayed response. I believe yesterday was also similar in behavior.

Gringo

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 TheTradeSlinger 
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Has anyone else noticed ES and YM taking leads on up moves? NQ catches up but has a delayed response. I believe yesterday was also similar in behavior.

Gringo

Definitely, I noticed NQ seems to be weaker than ES so far today.

NQ hit the bottom of the pre market channel while the ES did not.

Also, ES broke out of the pre market range to the upside and NQ has not.

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 DbPhoenix 
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Gring0 View Post
Has anyone else noticed ES and YM taking leads on up moves? NQ catches up but has a delayed response. I believe yesterday was also similar in behavior.

Gringo

All three have been decoupled for some time. What is more important in terms of AMT is that the NQ broke out of its daily range and the ES isn't even close. As for the YM . . .

 
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 TheTradeSlinger 
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Couldn't resist touching the top of the range huh....


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 DbPhoenix 
Phoenix AZ
 
 
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The Price of Admission


I had been thinking about risk for one reason or another the other day when I began re-reading, for the umpteenth time, "The MindGame", which begins with a market-as-carnival metaphor. And given that the essence of risk is choice – do or don't do, go or stay, forward or backward, yes or no, in or out – one could easily consider risk to be a matter of whether or not one is willing to pay the price of admission. If one wants to gain admission to the carnival, to ride the roller coaster or the Tilt-A-Whirl or the bumper cars or the Torpedo (that thing that pulls the money out of one's pockets as it turns him round while rotating and spinning him upside down), he must be willing to pay the price of admission, even if only to explore the Fun House or check out the freak show. Otherwise, he can't play. He is confined to watching other people have fun and win the prizes. Of course, he can also see people throwing up, but he's not a weak sister. He can handle it. He knows how to have a good time without letting things get out of hand. He's responsible. He's a grown-up. Two tickets, please. And a Sno-Cone.

As it turns out, this is an exceptionally useful question to ask oneself when hesitating over that Transmit button: am I willing to pay the price of admission? But it's a deceptively easy question as much more than willingness is involved in coming up with an answer. If willingness were all there was to it, then sure, why not? But paying the price of admission has consequences that are not always desirable (remember the throwing up?).

Justin Mamis, in his seminal work The Nature of Risk, delineates not one but several types of risk – information risk, price risk, time risk, and ego risk, for starters – and delves into how they all interact in order to aid the trader in deciding whether he wants to pay the price of admission or not. For now, let's focus on information risk and price risk.

The inescapable quandary that every trader faces is that the more he wants to know, the more sure he wants to be, the more he's going to have to pay for it, that is, the more information he has about the success of his trade, the higher the price will be by the time he acts. If he wants to pay less, then he's going to have to give up some of that surety. Maybe a lot of it. He's going to have to be satisfied with knowing less. Perhaps much less. This quandary makes a great many traders extremely uncomfortable, so much so that they find themselves unable to take the trade at all.

The market – that is, those who have the money to move it – always anticipates: good news, bad news, the contents of reports, the outcome of events. And because those in power are always the first to know, the more you know, given your place in the food chain, the later it is; the later it is, the greater the price risk, that is, the more you'll have to pay. Ergo, Mamis states, "all information has a negative bias against the price trend" (which is why John Magee didn't read the newspaper until it was yellow).

Nonetheless, we always want to know more; we always want one more piece of information. But even if somehow all pertinent information became available to everybody all at the same time, price would continue to move due to the fact that the players change, moment to moment, each with his own agenda, all moving price through different prisms. Therefore the question becomes not what information do we need to take the risk, but as this is all the information we have at the moment, how do we use it so as to reduce risk?

It is the nature of the market that one has to act before he knows enough. There is no one moment in which one knows enough to make a risk-free decision. Reducing risk begins with taking a risk before we know enough to make it safe. Reducing risk requires anticipating because the market itself is anticipatory. A willingness to act on that anticipation is what puts us in or takes us out of a trade at a better price.

The value of technical analysis (that is, the analysis of price movement) is that it reduces risk due to its being relatively objective (relatively as compared to fundamental analysis). What one "thinks" about what he sees is irrelevant – either price makes a higher high or it doesn't, either what he sees jibes with the tactics detailed in his trading plan or it doesn't, either support has been broken or it hasn't. Thorough testing enables the trader to come up with a set of metrics, or statistics. These results enable the trader to determine the probabilities of success if he does this or that under a given set of circumstances. Even so, the probability of success of a particular move is never 100%. Which puts us back at the point of deciding whether one wants to pay the price of admission or not.

Even if the trader has and trades only one setup, the character of that setup will vary according to the context in which it makes its appearance. Sometimes everything will fall into place "by the book" and one needn't even think about taking the trade. On other occasions, however, not everything falls into place so easily, and the trader must exercise his judgement, again having to decide whether he wants to pay the price of admission or not.

Back in the day, Disneyland sold books of tickets to its rides rather than a general admission which entitled everyone to ride whatever he wanted whenever he wanted as many times as he wanted. These books contained tickets labeled "A" through "E" (if you've ever heard the expression "E ticket", now you know what it refers to). The "E" tickets were for the most popular rides, the most exciting, the most "dangerous" (for Disneyland). The Matterhorn was an "E" ticket ride. "A" tickets were reserved for the carousel, the rotating teacups, the Storybook Canal. Stretching this carnival/amusement park metaphor a bit further, one can also classify various price phenomena according to how "exciting" or "dangerous" they are. Reversals after climactic moves might be considered "E" tickets, while retracements after breakouts might be more toward the "A" end of the spectrum. Perhaps the trader might be better able to decide if he wants to pay the price of admission if he first identifies whether the potential trade he's looking at is an "E" ticket trade or an "A" ticket trade. Or maybe even a "C". He can then decide whether or not he wants to pay and, if so, how much.

 
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lajx
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07/30

Context



Trades. attached file

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 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Don't overlook the 42-55 upper limit "zone" for that daily trading range we were in since April. So any trades in the 48-49 area are going to be difficult. And have been. A good real-life application of "the price of admission".

 
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 DbPhoenix 
Phoenix AZ
 
 
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When we become quite familiar with stock charts we shall find ourselves looking for various pictures and patterns formed by our charts, but if we are to be complete masters of our study and get the fullest benefits from our own analysis, it is important that we do not entirely lose sight of the fundamental basis for the formation of those pictures and patterns.

That fundamental basis is in actual stock market trading, and actual stock market trading is the result of individual actions by many thousands of people, based in turn upon their own hopes, fears, anticipations, knowledge or lack of knowledge, necessities and plans. It is the danger of losing sight of this human element in stock charts that we must guard against, and since this human element is basic it may be wise to fit it into the foundations of our study at the very outset.

--Richard W. Schabacker

 
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 DbPhoenix 
Phoenix AZ
 
 
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There may be some confusion over what is or is not a "successful trade". If there is, I'd like to attempt to clear it up.

Whether or not one makes money from a trade has nothing to do with whether or not the trade is successful. The trade is successful if it is implemented according to one's plan. If one pulls out of the trade for some reason that has nothing to do with the market, i.e., if the withdrawal is egocentric rather than marketcentric, that's the trader's personal problem, not a problem with the market.

For example, the circled trade is a successful trade even though the trader may have exited a trade entered at "1" due to its pulling back so far behind his entry price. It is technically successful because it never violated the DP. An entry at "2" would also have been legitimate, but would he have taken it? Probably not. If he had had the equanimity to take "2", he would not likely have exited an entry at "1".


 
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DrewDown
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DB, I would just like to say thank you for your work. It's heartening to see someone give back to the community.

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 bobwest 
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DbPhoenix View Post
It is the danger of losing sight of this human element in stock charts that we must guard against, and since this human element is basic it may be wise to fit it into the foundations of our study at the very outset.

--Richard W. Schabacker

I am enjoying your series of posts, including the quotes from earlier writers. It's easy to think there's something new under the sun... and while there may be, it's still the same at bottom.

I do think that there are a lot of things that work, but when they work, it's for the same reason. The market acts as it does, consistently, and its actions can be captured if you just look.

Thanks for presenting this very nice version of pure price action.

Bob.

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 DbPhoenix 
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bobwest View Post
It's easy to think there's something new under the sun... and while there may be, it's still the same at bottom. I do think that there are a lot of things that work, but when they work, it's for the same reason.

As I was once a baker, I think of it in terms of cakes. Some will bake their cakes using a mix out of a box. Others will bake their cakes "from scratch" but according to a recipe.

But though there appear to be a near-infinite variety of cakes, all cakes within certain categories (e.g., "yellow") follow the same formula: flour 100%, sugar a percentage of that, eggs another percentage of that, ditto with a liquid of some sort, leavening, and so on. The baker who's reached this level has the formula in his head. All he needs is a list of ingredients. If he follows the formula, his plan, his cake will be a success. If he doesn't, or he makes a mistake (which is where brownies allegedly came from), his cake fails.

 
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Schaefer
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DbPhoenix View Post
As I was once a baker, I think of it in terms of cakes. Some will bake their cakes using a mix out of a box. Others will bake their cakes "from scratch" but according to a recipe. .............


DB, I've known you for over a decade, but this is the first time, I've heard of you being a baker in the past. Incidentally, I'm just getting into baking (especially, pastries), as a side hobby. Now, that I've stolen some of your trading knowledge, I'd love to steal some of your baking tips, and secrets, as well. Would you mind starting a thread about baking, somewhere??

Schaefer

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 bobwest 
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DbPhoenix View Post
If he follows the formula, his plan, his cake will be a success. If he doesn't, or he makes a mistake (which is where brownies allegedly came from), his cake fails.

Didn't know that about brownies.

I guess there can be great value in some mistakes....

Bob.

Edit: And the overall baking analogy works for me....

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 DbPhoenix 
Phoenix AZ
 
 
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Schaefer View Post
DB, I've known you for over a decade, but this is the first time, I've heard of you being a baker in the past. Incidentally, I'm just getting into baking (especially, pastries), as a side hobby. Now, that I've stolen some of your trading knowledge, I'd love to steal some of your baking tips, and secrets, as well. Would you mind starting a thread about baking, somewhere??

Schaefer

If you want to start one, I'll be happy to contribute

In the meantime, this is my go-to book: https://www.amazon.com/Professional-Baking-Wayne-Gisslen/dp/0471886688/ref=sr_1_9?s=books&ie=UTF8&qid=1438347439&sr=1-9&keywords=professional+baking+wayne+gisslen

There are, of course, newer editions, but this is only 32c used, and formulas are formulas. Before buying something newer and more expensive, this will at least give you an idea of whether or not this is what you're looking for.

 
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  #283 (permalink)
lajx
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Context 31/07



Trades.



Note:

From the AMT point of view the second trade was taken in the MP of the TR, the “good” trade that accomplished the requirements regarding to the SLA and AMT was the first one, which by the way was successful because was the point of beginning of downtrend that later turned into a TC, notwithstanding the trade was discarded prematurely.

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Schaefer
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DbPhoenix View Post
If you want to start one, I'll be happy to contribute ...........................................


Thank you, DB. I'll give that book a try.

Schaefer

 
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 DbPhoenix 
Phoenix AZ
 
 
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lajx View Post

From the AMT point of view the second trade was taken in the MP of the TR, the “good” trade that accomplished the requirements regarding to the SLA and AMT was the first one, which by the way was successful because was the point of beginning of downtrend that later turned into a TC, notwithstanding the trade was discarded prematurely.

Sorry to contradict, but there are no trend channels here. But even if there were, I encourage those who are interested in this to keep it simple and avoid looking for trend channels in these micro environments, much less using them to trigger trades.

The first trade works because it's the first retracement after a breakout. The second one doesn't because it's too late.

In any event, the gain from the first would more or less balance out the loss from the second. The more important choice was to stop.

Edit: As long as we're on the subject, I should use this opportunity to point out that if the first entry is taken, I presume at or about 97, it needn't be exited until the supply line is broken, I presume at or about 93, resulting in a 4pt gain. If one invokes the Rule of Preclusion, the second trade would not be entered at all. Otherwise, there would be no gain but rather a 4pt loss.

If one then focuses on price rather than his loss (or in the event he entered at the first retracement, his profitable exit), he sees that price failed to reach the last swing high. This can be used as a justification for entering a potential continuation trade. This would be pretty much a wash. But those are the breaks. That it's a wash provides information (see The Price of Admission).

 
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OmDBnamah
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Namo Gurudev,

This one is a gem - "Reducing risk begins with taking a risk before we know enough to make it safe."

Now I know that this is what I did on my last two trades which were profitable and I was happy and satisfied with my execution. I entered very near to the low of a retracement (hence reducing my risk - this was prompted by one of your posts stating something like - we can do away with the confusion of when to know that the retracement is over and risk missing the upmove by risking a defined gap from the recent low).

Thanks as always for your guidance and support.

You don't know how many lives you are changing here and I mean it.

I want to let you and all know that so far i.e. since I started to take interest in trading I have not found anyone who came even close (in terms of knowledge and deciphering the market) to the shadow of Gurudev. No one even seems to think in these terms that we all are doing here and I feel this is some sort of evolution/wisdom being shared here.

Thanks to all for making this a success.

Regards,
K

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 DbPhoenix 
Phoenix AZ
 
 
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OmDBnamah View Post

This one is a gem - "Reducing risk begins with taking a risk before we know enough to make it safe."

I should point out again in case I haven't made it clear that this is a paraphrase from Mamis. Virtually everything I know about risk I learned from Mamis. In fact, along with Trading in the Zone, The Nature of Risk is one of the only two books I currently recommend.

Similarly, the SLA is firmly rooted in Wyckoff. It didn't just come to me in a dream.

 
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  #288 (permalink)
 PrymeTyme 
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today , was a "mean" reverting day and hence not easy to trade ,
one must have been aware what price "wasent" capable to do ..

at best there where two trades, to take..

 
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  #289 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

I count up to four, depending on where and how one enters and how risk tolerant he is.

But, no, it was not an easy day.

 
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  #290 (permalink)
Gring0
Toronto
 
 
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I think we are around 50% of the way from the top to bottom move, hence, some turbulence.

Gringo

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 TheTradeSlinger 
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DbPhoenix View Post
I should point out again in case I haven't made it clear that this is a paraphrase from Mamis. Virtually everything I know about risk I learned from Mamis. In fact, along with Trading in the Zone, The Nature of Risk is one of the only two books I currently recommend.

Similarly, the SLA is firmly rooted in Wyckoff. It didn't just come to me in a dream.

I found The Nature of Risk online and I'm reading it now.

Fantastic insights so far and I'm just scratching the surface of the book.

Thank you Db.

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Gring0
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TheTradeSlinger View Post
I found The Nature of Risk online and I'm reading it now.

Fantastic insights so far and I'm just scratching the surface of the book.

Thank you Db.

Mamis does say the obvious, yet, that obvious isn't so apparent without reading it first.

Gringo

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 DbPhoenix 
Phoenix AZ
 
 
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Gring0 View Post
Mamis does say the obvious, yet, that obvious isn't so apparent without reading it first.

Gringo

I don't know that it's "obvious". Traders rarely discuss any of the various kinds of risk, only "Risk". The sticks in the spokes for the intended audience for the SLA have always been price risk and ego risk.

 
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  #294 (permalink)
lajx
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CONTEXT 03/08



TRADES


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  #295 (permalink)
OmDBnamah
New Delhi India
 
 
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I think we are range bound b/w 4570 - 4608?...

Regards,
K

 
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  #296 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

Are you in a bull market? Are you in a bear market? Or, are you in a trading market? lf you are to extract profits from these markets, you must apply the correct methods to trading these markets. If you incorrectly assess your market stage, your trading decisions will be flawed. They will be flawed not because the trading decisions are in themselves bad, but because the premise upon which you apply these decisions is incorrect. Most readers instead blame the trading decisions as being bad.

--William F. Eng

 
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  #297 (permalink)
msenev
Colombo/Sri Lanka
 
 
Posts: 1 since Aug 2015
Thanks: 1 given, 0 received

Hi DbPhoenix,

Do you allow Forex pairs in this thread? If not I will remove these pictures.

I attached a couple of charts from the EUR/JPY Daily and Hourly. PA seems to be locked within a range in the Daily, while the hourly shows price locked in a range within the Daily's upper range limit and median.

Thanks!

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  #298 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012


msenev View Post
Hi DbPhoenix,

Do you allow Forex pairs in this thread? If not I will remove these pictures.

I attached a couple of charts from the EUR/JPY Daily and Hourly. PA seems to be locked within a range in the Daily, while the hourly shows price locked in a range within the Daily's upper range limit and median.

Thanks!

I'm not interested in it, but if you can make it work, why not?

However, it isn't going to do you much good unless you draw your lines in real time. And unless whatever you're trading is mean-reverting, you will in effect be playing dodge ball with price. Add to that the fact that the SLA is of little use in ranges and of no use in chop and you may be running after the wrong train.

 
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  #299 (permalink)
OmDBnamah
New Delhi India
 
 
Posts: 5 since May 2015
Thanks: 14 given, 1 received

Seems like a hinge to me on 60/15 mins bar time frame.

Regards,
K

 
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  #300 (permalink)
 DbPhoenix 
Phoenix AZ
 
 
Posts: 470 since Dec 2012

I don't want to interfere in journals unless asked, and I'm not a fan of the ES anyway, but I would like to point out that trading the ES under these conditions is particularly difficult, regardless of whether or not one is trading the SLA/AMT.

If the following chart is not self-explanatory, I'll be happy to elaborate.



Closed Thread

futures io Trading Community Traders Hideout Emini and Emicro Index > Trading the SLA/AMT Intraday


Last Updated on August 15, 2015


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