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Trading the SLA/AMT Intraday
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Trading the SLA/AMT Intraday

  #221 (permalink)
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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:

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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.

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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).

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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:

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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):

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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.

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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.


Last edited by DbPhoenix; July 12th, 2015 at 11:06 AM.
 
  #222 (permalink)
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13/07

13/07

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  #223 (permalink)
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Yep.

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  #224 (permalink)
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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:
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Crude Oil Daily:
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  #225 (permalink)
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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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Last edited by DbPhoenix; July 15th, 2015 at 09:24 PM.
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  #226 (permalink)
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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:

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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.

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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)
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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.


Last edited by Iamdom; July 18th, 2015 at 11:57 PM.
 
  #228 (permalink)
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Now back to our regularly-scheduled program:

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

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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:

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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.

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

(to be cont'd)

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  #229 (permalink)
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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.

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

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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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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.

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

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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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