three86 

The stock market is neither efficient nor random. It is not efficient because there are too many poorly conceived opinions. It is not random because strong investor emotions can create trends. - William O'Neil That quote was from the 80's before as much program trading but they have only made it less efficient and less random. "robots" and increased % of retail traders have made it easier for me. By easy I mean longer and more identifiable trends. I am not battling them I am following them and they are more linear than big traders trying to hide their footprints. It will be amazing with different market condition than the last 10yrs.

Anagami 

Great question. Watching the same market for a long time creates perceptual filters in one's mind that allow not just for directional handicapping, but more accurate assessment of the likely magnitude of a move...etc. In other words, experience counts for a lot, specifically in terms of grasping the present market context. That's why this game is not about having 'the right strategy'. It is about recognizing the right context for the strategy that you do have. Many people have this completely backwards. So, how to recognize the context in any given moment? I couldn't code it into an algorithm, and thank God for that, because then it could be exploited. 80% of volume is algos. Algos look at some things being in place, and then they fire. I don't trade or think like that. I can see 20-30 trade setups a day on ES, but never take more than 1 or 2 of the best. What is the 'best'? That's exactly the source of my edge, the ability to 'understand' the market context that shifts the probability of my trade success from lower to higher.

I understand now. Totally agreed. Context-awareness has been a goal of my trading system research for a long time but so far only very limited success is reached. It is really a hard problem. Thank you for sharing your thoughts.

That is interesting that context benefits you. I have spent many years working on trading with as little context as possible. To me that was one of the hardest parts. Thinking about anything besides price trending up down or flat on two timeframes makes my trading bad. That includes thinking about my profit or loss for the day or year, what I think the fed is gonna do, how the economy is doing, why softbank is manipulating options, pretty much everything except price change. Everything is reflected in the price so reacting to changes works and any prediction I might have is worthless and even dangerous if it interferes with my reaction.

three86 

That is interesting that context benefits you. I have spent many years working on trading with as little context as possible. To me that was one of the hardest parts. Thinking about anything besides price trending up down or flat on two timeframes makes my trading bad. That includes thinking about my profit or loss for the day or year, what I think the fed is gonna do, how the economy is doing, why softbank is manipulating options, pretty much everything except price change. Everything is reflected in the price so reacting to changes works and any prediction I might have is worthless and even dangerous if it interferes with my reaction.

Oh, I didn't mean fundamental context. I mean technical context.

That everything is reflected in the price may be true, but it isn't true that this is all that is important technically.

Suppose all I give you is current price, WITHOUT the past (i.e. the chart with the historical movements). Great, trade it. How useful is that?

Anagami 

Oh, I didn't mean fundamental context. I mean technical context. That everything is reflected in the price may be true, but it isn't true that this is all that is important technically. Suppose all I give you is current price, WITHOUT the past (i.e. the chart with the historical movements). Great, trade it. How useful is that?

If you give me only once per day I am gonna have to make a lot fewer trades. Once every 10 minutes would be plenty for a couple trades a day. If you mean you will only give me one price ever I would get a different broker.

three86 

If you give me only once per day I am gonna have to make a lot fewer trades. Once every 10 minutes would be plenty for a couple trades a day. If you mean you will only give me one price ever I would get a different broker.

Exactly. You need more than just a single price.

three86 

That is interesting that context benefits you. I have spent many years working on trading with as little context as possible. To me that was one of the hardest parts. Thinking about anything besides price trending up down or flat on two timeframes makes my trading bad. That includes thinking about my profit or loss for the day or year, what I think the fed is gonna do, how the economy is doing, why softbank is manipulating options, pretty much everything except price change. Everything is reflected in the price so reacting to changes works and any prediction I might have is worthless and even dangerous if it interferes with my reaction.

Anagami 

Oh, I didn't mean fundamental context. I mean technical context. That everything is reflected in the price may be true, but it isn't true that this is all that is important technically. Suppose all I give you is current price, WITHOUT the past (i.e. the chart with the historical movements). Great, trade it. How useful is that?

"Context" may be one of the hardest thing to talk about or define, or even communicate about.

Here we have one trader who, very plausibly, says he wants nothing to do with "context," and another, also plausibly, who says it is the most important thing.

But to me, when @three86 says "Thinking about anything besides price trending up down or flat on two timeframes makes my trading bad," he is talking about most of what I think of as "context" -- to me, "context" is mainly whether we are in a trend or range, plus things like support/resistance and how it fits within a higher timeframe.... basically, what he says is not "context." I mean "context" to be only what is relevant on the chart; it is not wrong to use the term otherwise, and in fact it can make sense. We just need to know what is meant at the time. We're talking about semantics, not substance, when we have different meanings for the words we use.

When @Anagami says "Suppose all I give you is current price, WITHOUT the past (i.e. the chart with the historical movements)" ... well, to me, the historical movements, or their interpretation, are also the "context."

I think they (and I) are largely talking about the same or similar things, but the word "context" is so ambiguous that it seems like we are not.

Yet others will have other meanings they give to "context." Traders who make use of market or volume profile may go into great detail about the "auction" -- as if non-profile traders have any idea of what they mean. But they may be able to trade it, so they mean something worthwhile. To me, in my limited understanding of auction theory, this all sounds like "context." In other words, context in this sense is whatever the trader thinks is the relevant larger picture.

Sometimes I have to work hard to translate what someone means before I have any idea whether I see it the same way or not.

Sorry to take things off into the woods a bit. Back to context, as I am using the term....

This all may have something to do with the very common experience of someone absorbing a successful trader's methods as presented in a text/course/videos, understanding (they think) what the other trader does, and then falling on their face when they try to trade that way. Something didn't get actually brought over, and it wasn't the details, it was the (ahem) "context." That is, the overall picture of whatever is regarded as really important.

Personally, I think that one's understanding of what price is doing (or what other traders are doing, or however your viewpoint may put it) is the actual source of any edge. Which means there are likely many edges, and many illusory non-edges too.

Bob.

bobwest 

"Context" may be one of the hardest thing to talk about or define, or even communicate about. Here we have one trader who, very plausibly, says he wants nothing to do with "context," and another, also plausibly, who says it is the most important thing. But to me, when @three86 says "Thinking about anything besides price trending up down or flat on two timeframes makes my trading bad," he is talking about most of what I think of as "context" -- to me, "context" is mainly whether we are in a trend or range, plus things like support/resistance and how it fits within a higher timeframe.... basically, what he says is not "context." I mean "context" to be only what is relevant on the chart; it is not wrong to use the term otherwise, and in fact it can make sense. We just need to know what is meant at the time. We're talking about semantics, not substance, when we have different meanings for the words we use. When @Anagami says "Suppose all I give you is current price, WITHOUT the past (i.e. the chart with the historical movements)" ... well, to me, the historical movements, or their interpretation, are also the "context." I think they (and I) are largely talking about the same or similar things, but the word "context" is so ambiguous that it seems like we are not. Yet others will have other meanings they give to "context." Traders who make use of market or volume profile may go into great detail about the "auction" -- as if non-profile traders have any idea of what they mean. But they may be able to trade it, so they mean something worthwhile. To me, in my limited understanding of auction theory, this all sounds like "context." In other words, context in this sense is whatever the trader thinks is the relevant larger picture. Sometimes I have to work hard to translate what someone means before I have any idea whether I see it the same way or not. Sorry to take things off into the woods a bit. Back to context, as I am using the term.... This all may have something to do with the very common experience of someone absorbing a successful trader's methods as presented in a text/course/videos, understanding (they think) what the other trader does, and then falling on their face when they try to trade that way. Something didn't get actually brought over, and it wasn't the details, it was the (ahem) "context." That is, the overall picture of whatever is regarded as really important. Personally, I think that one's understanding of what price is doing (or what other traders are doing, or however your viewpoint may put it) is the actual source of any edge. Which means there are likely many edges, and many illusory non-edges too. Bob.

and if I may throw a wrench in you guys sprocket....maybe in certain situations substitute context with confirmation bias.

Arrghhhh..........damn Devil Man!

Devil Man 

and if I may throw a wrench in you guys sprocket....maybe in certain situations substitute context with confirmation bias. Arrghhhh..........damn Devil Man!

Sure. "Context" is kind of whatever you mean by it.

One term traders use a lot is "bias." As in, "my bias was bullish so I...." Whatever comes after that means, "this is what I did because I had a prior belief that price would do x." This can be a dangerous type of belief to have.

These terms are so general they can mean anything, really. Which is always the problem.

Bob.

I am ok with needing context if that means I can get more than one price. What I do is definitely in the minimalist realm and on purpose with a lot of practice. Although when I click on the highlighed word "context" it goes to https://nexusfi.com/articles/trading/Context The part:

"Trading without context is like betting on sports by only looking at the final scores of every game. Yea we know who won and which teams have better records but we don't know why or how. Was it the teams' great defense that has been winning its games? the teams that they've played have they only been against weak offences? whos injured is there home field advantage? Did the team execute well or did they just get lucky? Did they really win or was it the other team who just made too many mistakes and lost it?"

That is exactly what I am doing. If I was betting on sports like I trade I would bet on the team that won to win the next game and not care about any of the other stuff. If I get to see the final scores of every past game I would use that as context or whatever. If someone won 3 in a row I would bet they win the next one. I don't care how or why they won. As it relates to trading it is buying a new high or shorting a new low. That depends on the timeframe and I am not a true trend follower who has a ton of losses and a few big gains I tried but can't handle that psychologically. I did trade short all day today because the daily trend is down although with more (or less?) context it was going up all day as a trend day and I was surprised but happy that I had a small profitable day. That just is thanks to good entries which isn't always the case.

bobwest 

Here we have one trader who, very plausibly, says he wants nothing to do with "context," and another, also plausibly, who says it is the most important thing. But to me, when @three86 says "Thinking about anything besides price trending up down or flat on two timeframes makes my trading bad," he is talking about most of what I think of as "context" -- to me, "context" is mainly whether we are in a trend or range, plus things like support/resistance and how it fits within a higher timeframe.... basically, what he says is not "context." I mean "context" to be only what is relevant on the chart; it is not wrong to use the term otherwise, and in fact it can make sense. We just need to know what is meant at the time. We're talking about semantics, not substance, when we have different meanings for the words we use. Personally, I think that one's understanding of what price is doing (or what other traders are doing, or however your viewpoint may put it) is the actual source of any edge. Which means there are likely many edges, and many illusory non-edges too.

For me a lot of stuff throws me off like volume, trend lines, channels, support resistance, fibonacci retrace, $tick, adv/dec, volatility, moving averages (reaction to not direction of) you name it pretty much anything technical besides pure higher or lower prices. Seems like that would be context to most people for what the market is doing. I am knowledgable about most of it and in the past have used a lot of it. But for the last 20 years I do my best to only care about trend direction and trading in that same direction on a timeframe that makes sense to how often I want to trade. Ignoring almost all context technical or otherwise I trade better.

I know that is somewhat unusual. It is like Livermore if the price is going up I have to be buying. Or turtle trade management or Seykota embracing emotions as well as trend. But I also know it works for me because I have proven it to myself and I am never on the wrong side of any significant move which is my main goal in doing it. It also means reversing as needed without any attachment and not fading the larger trend (like today) both used to be extremely difficult for me.

Obviously if every trade is in your direction you will do very well but that is unrealistic. Also price trends differently on different timeframes and has a fractal quality to it where fear and greed show up on shorter and ripple to longer. So you could be with the trend but it lasts shorter than expected or tradable. It also means I could say the market is trending down and you could say up and we both be right. The best edge is position size and risk management. If you are bad at that I don't think it matters which strategy you will not be around long.