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Are you trading short into support? If yes, predefined target or exit is reasonable.
Are your long into resistance? If yes, predefined target or exit is reasonable.
And conversely, the opposite applies if:
You’re trading long off of strong support. You should start trialing at the 127% / 161.8% extension of the move.
You’re trading short off of strong resistance. You should start trialing at the 127% / 161.8% extension of the move.
If you are not sure about support or resistance levels…you should not be trading! Very few indicators are going to tell you this correctly and if you can’t figure it out manually you just plain shouldn’t be trading.
Stops are based entirely on structure and your level of risk tolerance. If structure tells you the stop is 40 ticks on the TF or CL and you can’t handle it, don’t trade it. But those are usually the trades that run for $1200 or better per contract.
If I have the energy to create them...I'll post some CL and TF trades from Friday that illustrate these very principles.
Can you help answer these questions from other members on NexusFi?
You mentioned two things that I want to mention / ask .....
1. for the trading of Longs off of a " Key " support level
and trading shorts off of ' Key ' resistance levels ..... you mentioned trailing at the 127 and 161.8 extension moves .
I like this concept , and was wondering if you could elaborate a bit, as to why these two Extension levels ?
Is it because , if you place your stop at these levels as the trade moves your way , that it keeps you at a ' safe distance " in the trade , I.E. less prone to being taken out early in a strong trending trade , via pullbacks that may occur and the occasional whipsaw ?
2. Great comment on the sometimes Risk in a trade like on CL , and basing it on the structure of the market, via the charts you're trading off of, and where the key levels of support and resistance are ( even for day trading, I always look at the weekly and monthly charts, for honing in on the KEY sup / res levels )
It can be a bit much in terms of risk per 1 contract, but it can also ( and I believe more times than not .... as long as you can time your entries with great accuracy and thus not have to grit your teeth and incur to much of a pullback going against you in your trades, after you've entered them ) , that that $400 risk , would then be something to not worry to much about .
But worse case scenario .... it takes you out for a full loss , and you wait for the next timely and precise entry
I believe that this is where having a true EDGE comes into play, as well as a realistic and consistent achievable ( on a regular basis ) risk to reward ratio
I have started using the ATR , set to a 15 day look back period
What ever that number is , once I enter a trade.... will shot for and " assume " that I can achieve around 75% of that ATR as my target , and then divide the 75% of the ATR by 3 , and try my best to stick with that number as my daily / allowable risk per trade/entry
3. you had mentioned the following ......
" If I have the energy to create them...I'll post some CL and TF trades from Friday that illustrate these very principles. "
That would be great if you could post and share some trades and charts of the CL and TF
I will mark them up tonight and try to post them tomorrow. I'm on the West Coast so it is a 4:10am wake up call for me tomorrow. Hard to get excited about anything but another beer and some sleep at this point
Whether or not I trade with a target depends on volatility - which drives how much of a move I can expect. Smaller moves, I set a closing order because I want to take as much as possible and be sure to get my fill if I can. Sometimes will close out a tick back towards the red if my limit order isn't getting triggered. Targets should be based on potential expectancy if used.
As promised, here is the CL trade. All chart times are pacific time zone.
The first chart is a 1618 tick HTF condition chart. The red arrow shows a short around 5:30 am that I missed. Since I missed the entry I had to wait until it played its self out and wait for the turn , shown by the arrow at the bottom. The complete move down extended past the 199% target for the trade, so I was confident that it could short squeeze after the turn.
The second HTF chart shows the turn. #1 is the first opportunity for the un-informed traders to go short again. After the first rejection and those shorts getting stopped out (small stops) you get the 2nd bounce up #2. The hook is set now.
The move down stops at the 50% retracement ( the valid zone is .50 to .786 ).
That move is illustrated on the final entry chart. You can see #1 & #2 highs marked on the chart. The 50% retracement is just before the green vertical line ( trade entry) which is generated by Bloodhound.
The fib extensions are the targets. 127 % would be #1 , the 1.618% is the natural or expected target for a trend trade, the 199% & 233% are extended targets, usually hit on short squeezes like this.
The initial stop on this trade was 30 ticks. As you can see I was able to reduce that to 5 ticks below the low pretty quickly. After price breaks the previous high you could move your stop to even. The trade was up 60 ticks in about 60 minutes before it started to retrace. I actually exited with 44 ticks because that put me over $1100 for the day and there were other things happening in the office I had to attend to. Generally speaking, I will not leave the computer if I have a CL trade working.
As you can see price extended past the natural target of the 1.618 and ran to the 199% almost to the tick before a small retrace and small push up. If held to the 199% this trade would have been worth $1280.
Some people may not be able to hold a trade for 60 minutes or may have taken the 60ticks after the first push. But, if you have the staying power and belief in what you are doing the rewards can be astounding.
Static targets in anything but a range bound condition just limit your profits.
My answer to the OP question is no, trading with out specified stops or targets GIVEN IN TICK OR POINTS is fine. Which brings me to my next point, all of the answers here are basically iterations of the same thing. I do not think they are giving the full scope of options that are out there for "stop and targets". All of the answers are using some visual chart pattern to enter and then using some distance (measured in ticks/pts) as a stop or a target. How these are calculated differ slightly but in general its the same idea.
There should be consideration for entry and exit conditions, of which chart patterns and distance based targets/stops are a sub category. But that does not actually represent the full range of options. Do you need a distance or chart pattern based stop or entry, absolutely not. But do you need some type of preset condition to enter or exit, yes this is mandatory.
Since this thread is mostly on exits I will be speaking mostly to that. You can use several types of exit conditions, based on volatility, time, underlying (most of us trade derivatives), fundamentals, self similarity, or anything you can find that has a +EV exit situation for your specific strategy. As exits and entries must work together, you need to find some that add value to your entry and trade management systems. I would say that the distance based target or stop is the most naive of the exits. Given how many tools and data sources there are you can be much more creative and get better risk adjusted returns if you can generate optimal exit criteria.
Thank you so much for posting your charts and for the write up on each and the explanation and thoughts that went into your trade
I wanted to ask you what your thoughts are, on using an ATR to base your potential " likely " profit targets for any given day
For Example:
currently, I am using the ATR , and have it set to a 15 day look back period on a Daily chart
Currently, on the ES , the ATR is around 19 points
So If I get an entry, I will assume that I can get 75% of that ATR ( 14 point ) profit target per trade that I enter
BUT.....
The other thing is, I like to use the fibonnaci Extension drawing tool , and use it as a visual on when to add to my position / move my stop
I have it set to plot on my chart every 100% extension level
So once I'm entered into a trade, I will add to my position ( scale in ) at every 200% level and move ( trail ) my stop by each 200% level
I'm going to have showing on my carts the 127 , 1.618 and 199 % fib. extensions as you suggested
Why does price tend to touch / reverse / pullback at these 3 various fib. levels ?
Is it a self fulfilling prophecy ?
These levels seem to be like automatic magnets, that price towards to gravitate towards....a high percentage of the time
I attached a chart of the 6E , to showcase the 100% fib ext. levels
and the baby blue and pink dots on the same chart.... is the ATR trailing Indicator ( set to a 15 day look back period with the 3 x multiplier )
Thanks again - Michael
Static targets in anything but a range bound condition just limit your profits.
I don’t trade the ES and while the methods I use would work, they only work in the context of swing trades.
Symbols that move like the NQ,TF,CL,6E, FDAX are the best markets to trade using my methods.
I think it can work well. My partner and I were working on an auto trader. We investigated using ATR calculations to avoid some trailing stops issues. We never implemented it, but it may be of use.
Is it working for you? That’s the real issue. If it is working roll with it.
It is impossible to know why they work, but they do. BUT, they only work if you know when , how and why you are using them. There are several degrees of the market working at any given time. The key is knowing the proper way to apply them.
Do they work all of the time? Of course not, nothing is 100%.
