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Two Line Trading


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Two Line Trading

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  #1 (permalink)
Lisbon
 
Experience: Beginner
Platform: NinjaTrader
Broker: Mirus Futures / Zen-fire
Trading: Es
 
FredyMegaG's Avatar
 
Posts: 59 since Dec 2009
Thanks: 19 given, 44 received

Hey everyone this is my first thread!

I would like this thread to be a gathering place for "indicator-free" traders, for sharing of toughts and discoveries, regarding this trading systems.

But still would like to hear from more indicator affictionates traders on their toughts, either why this could work or not, or what we could do to increase our chances!

I really enjoy reading about indicator-free trading and I come to believe that this is the best way to trade.

I have always been trapped into the HOLY GRAIL quest, trying to find the best-non-lagging-coloring-rightious-perfect entry and exits indicator! But I know for so long that this doesnt exist...
So there is no point for me to look at indicators for other than confirmation and ensurance.

I still believe in checking indicators for trend strenght and divergence signals, but wedges, triangles, lower lows, trendlines, etc...look more obvious to me.

Price action is always there, whatever indicator you use, its lines, its colors, etc, only appear AFTER price settles in the latest bar...

Anyway, im sure you have read about all this somewhere.

SO! I've been looking at this particular setup to start with, and would like to discuss it, as well as hear your toughts and advices on it and this kind of trading.

As I've seen it being refered to, I'll refer to it as Two Line Trading.

Here's what I've come up with:

I look for an outside bar, followed by an inside bar.

An outside bar is a bar whose range is bigger than the following bar, the inside bar (this is more clear in the pictures attached)

Once this happens, I draw two lines!
One in the high and another in ithe low of the outside bar (bar nº 1).

I put limit orders on these levels: Enter short at the lower line and enter long at the upper line.

After this, somewhere in the next bars (after the inside bar that alerts me for this setup) I wait for a bar, the Trigger bar, that fills one of these limits, and cancel the other.



Ive been using this setup mostly for 1440 minute (daily) chart on the ES, which i find to work best in this setup...

I like to exit the trade on the same day of the trigger bar, ie try to exit at the high of the trigger bar ...

Sometimes I think that its better to use a trailing stop, to prevent from cutting a winner short.... but other times i think that the Trigger bar gets the highest profits.


Ive collected a lot on entry signals, registered their maximum profit, maximum drawdown, and figured this works best with a 5 point stop, and a 7 point target!

I also believe that at 5 points profit... or something like that, you can set your stop to BE.

Since a picture is worth a thousand words, please check the attached pictures..

I hope this some traders and inspires others in usind this kind of setups.

Im kind of worried about the stops and targets ive set... please discuss, i'd like to hear your opinion on this, and the setup overall.

While youre at it, please post your systems as well, we can find the best way to trade without indicators!


For my sake, I do realise that this system (at least on the daily bars), gives out very few setups per month... and i dont know if it can be considered day trading, but its not swing as well..., but i find it very reliable to compensate.

Please share your toughts.

Best regards and happy trading,
Fredy.

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  #2 (permalink)
sea side
 
 
Posts: 217 since Dec 2009
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Nice pics Fredy,
It seems you are using some kind of breakout strategy.
How you watching volume as well or just price?
Have you tested that on intraday data ?
I do not remember exactly, that's why please don't consider that seriously, but I've heard something like when ES cross 10 SMA in any direction it goes 3 days may be it somehow correlates with your strategy ?
How you also saw Larry Williams breakout strategy based if memory services me right also on inside bar ?
That's just ideas, but I will be glad to discuss it more detailed further, as also interested in further studies of any kind "levels"
Krgds,
Andrew

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  #3 (permalink)
lisb
 
 
Posts: 5 since Oct 2009
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hey andrew!

Right now im only looking at price, but im learning a lot about order-flow analysis to complement it. (volume is the key)

I'll keep posting when i find something new!

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  #4 (permalink)
Lisbon
 
Experience: Beginner
Platform: NinjaTrader
Broker: Mirus Futures / Zen-fire
Trading: Es
 
FredyMegaG's Avatar
 
Posts: 59 since Dec 2009
Thanks: 19 given, 44 received

hey andrew!

Right now im only looking at price, but im learning a lot about order-flow analysis to complement it. (volume is the key)

I'll keep posting when i find something new!

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  #5 (permalink)
sea side
 
 
Posts: 217 since Dec 2009
Thanks: 86 given, 25 received

Fredy,
Yes, volume is important.
Please clarify for you volume = order flow or not ?
how you are going to see order flow sitting outside pit ?
I'm not criticizing, I'm interested and asking for clarification, may be I'm missing something.
I've tried to look on delta volume, but it not tells a lot for that purposes + nobody knows if it really correct.
So, I'm trying to figure out something with volume spikes/middle average.
If I will find something interesting will tell you.
Will be glad to be in touch.
Krgds,
Andrew

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  #6 (permalink)
Cadiz, Spain
 
 
Posts: 6 since Dec 2009

Hi, FredyMegaG:
In your charts, bars ares 1440min.
1bar of 1440min is equal a daily bar??

Thanks...

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  #7 (permalink)
Paris, France
 
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I like simple strategies based on price & volume and without indicators. So I took the time (over an hour) to program this and backtest it. I then optimized for the best stop & target.

The equity curve sums it up:



To make sure I got it right here are the last two trades:



Then I re-optimized for 5/15/07 - present since it has done well during this period. Here's the equity curve:



This one used 150 ticks for the target (effectively having it exit on the close) and 40 for the stop.

Performance since 3/1/2008 shows that the performance is not great. PF is 2.15 and total profit is $4575 but the drawdown is $2k.

I'm not a big fan of mechanical methods, so it seems this could be used to give a bias or a system.

The reason I spent time on this is I've always taken the breakout of the inside bar, especially if it's an HVC bar. So I tested that as well. Perf was breakeven until 3/2007 and then it performed well. Unlike the first method, this one performs more consistently.

$15k
Drawdown $1600
PF : 3.59
This is using 40 tick stop and exiting on close (no target)


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  #8 (permalink)
Site Administrator
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cunparis,

If I am not mistaken, the re-optimized version since May 2007 is only trading less than two times a month. I would be extremely fearful it is curve fitted.

Mike

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  #9 (permalink)
Paris, France
 
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Big Mike View Post
cunparis,

If I am not mistaken, the re-optimized version since May 2007 is only trading less than two times a month. I would be extremely fearful it is curve fitted.

Mike

I do not see how the trade frequency can make it more vulnerable to curve fitting. First, the parameters that I optimized are not for trade entry, so I'm not filtering out trades. I'm taking every inside bar breakout.

However I have to admit I do not have experience optimizing the target & stop for a strategy that doesn't use any indicators. In the past I've optimized moving averages and such and curve fitted perfect systems that didn't hold up.

In fact the only parameter that I optimized is the stop. Since the target optimized to 150 that effectively means no target, just exit on close.

I think this strategy captures a valid market behavior that breakouts of inside bars can be profitable. I'm not saying I'll trade it, i prefer to have more trade data. I just wanted to share because I think it's valid. if I have time later I'll try testing it on hourly or 30min bars..

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  #10 (permalink)
Lisbon
 
Experience: Beginner
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Trading: Es
 
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Posts: 59 since Dec 2009
Thanks: 19 given, 44 received


hey guys!

Cunparis!

Loved your backtesting! The equity flow seems quite nice, but could you explain again which method you found more reliable and why? (the breakout of the outside bar vs the system you usually took...i guess the inside bar breakout right?)

I'll still give another close look at your post and your pics to see if i missed anything!

The major problem i found was that it only signaled something like 5 trader per month...extremely low... when i looked at daily bars.

Did you find this setup useful in other time/range/tick/volume frames? I only looked at smaller time frames and really couldnt see much OBVIOUS outside/inside bar patterns to trade on.... too many fakeouts... what do you think?

Aurosam!

Yap thats right! i guess ninja /mirus /zenfire doesnt plot daily data... so if you put 1440 minutes you get a daily bar! but only 3 months worth of data i guess... im still figuring how to set it to get more than that historical data... ill let you know if i find anything!

Andrew!

Im also trying to figure out order-flow analysis to complement the strategy, but im really trying to connect volume to the bars to check out the power of the moves!

We can only see the volume bar finished when the price bar closes, but im trying to analyse the volume at the time of the breakout to see if its a powerful move or not..
I really like volume analysis, but coulnt really get the "bettervolume" indicators.... too many colors for me... (worth a look tough!)


I hope we stay in touch! im currently learning about delta bars and order flow... if i find anything useful i'll post!

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