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Trusting your signals
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Trusting your signals

  #21 (permalink)
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market structure?

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Also - what is your definition of "market structure"? Are you talking about having a bias as to the trend / tone of the market on any given day? Or understanding that it is in an uptrend / downtrend / range day? I always tend to trade in the direction of the trend, but also know that the market can change trend any time it wants. An uptrend can certainly change to a downtrend during the same day, which is why it is important to take every solid signal your system gives you, no?

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  #22 (permalink)
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The brain gets its limbics screwed up because we are dealing with uncertainty, not probability.

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  #23 (permalink)
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Rudedog60 View Post
Also - what is your definition of "market structure"? Are you talking about having a bias as to the trend / tone of the market on any given day? Or understanding that it is in an uptrend / downtrend / range day? I always tend to trade in the direction of the trend, but also know that the market can change trend any time it wants. An uptrend can certainly change to a downtrend during the same day, which is why it is important to take every solid signal your system gives you, no?

You are correct that the trend can change at any moment, but when you get to areas of support/resistance (or as some refer to supply/demand), you are once again dealing with probabilities in that area holding as it has in the past.

If you refer to the attached example price is in a downtrend, you have stochastics making a lower high, you have a retrace to the SMA. This is similar to the example you posted. A traders rules might say:
1: Stochastics downtrend / lower high
2: Price downtrend
3: retrace to SMA
4: Go short on a break below the most recent candle low

Fair enough. If that's the system rules then as we've established they need to be taken every single time. However of importance in the attached example is the fact that you are nearing a level of support/supply that has proved very strong the prior day. Going short at that point is arguably not a very good idea. You may get a scalp, but any follow through is perhaps a lower probability trade.

Things like that can be built into your rules. Dont go long into resistance, dont go short into support. Or whatever it is that you define (that's up to you to research and decide on). The point is that it once again becomes part of your system which you have researched, evaluated and proven to have an edge. Adding that aspect may add more weight to a discretionary system that relies on indicators.

(Apologies for the rather weak stochastics reference. I dont use this indicator so I dont really know much about it. I just added it for the example)

cheers.

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  #24 (permalink)
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Ratfink, I think you are right. I heard of a study once done involving trades taken by "normal" individuals and psychopaths (who had no conscience or lacked emotions). Of course the latter performed better when told to pull the trigger. They let their winners run while the others took quick profits.

Also read of a study in the book called "How We Decide" involving individuals who had suffered a brain injury to that portion that controlled emotion. They still had the same intellectual capacity that they had before their injury. The thought was that if you were able to remove the emotional aspect from the decision making process, that only "rational, proper" decisions would be made. It turned out that they folks could not make a decision about the simplest things, such as choosing a flavor of jam because they didn't know which was "better". They needed an emotional basis to tell them that they liked the taste of one over the other.

Galileo described the brain as being divided up between the rational and emotional. He saw it as if you were driving a chariot with two horses, each representing a portion of the brain. The secret was controlling them and making them work together.

Interesting stuff.

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  #25 (permalink)
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spikoloco View Post
I do belive that entries and exits are important. I have mostly focused on entries so now it is time to start working on trade management and exits. My question is, where can I start learning about this?

Some things to look for exits and trade management to start out with.
Developing a personal plan to deal with trades going south. Some commonly discussed strategies.

Set stop losses based on r:r ratios, or other factors such as when a specified trading plan's reasons for taking a trade is no longer valid.
Exiting an entry early when the price action looks bad or going south and re-evaluating or waiting for another "second" entry when the reasons for taking the trade reasserts themselves.
Advanced technique of stopping out could involve a quick enough re-evaluation for a stop and reverse trade in the other direction.
Set targets for profit profits with or without a runner with a trailing stop.
Trailing stop based on an indicator such as a slower secondary MA or other criteria, such as trendline break
or break of recent low or high level.
Testing the trade management and exit plan. You always have the trades W/L ratio of which > 50% is preferable, >= 60% demonstrates more consistency. Then you have the profit factor. NT does the profit factor automatically. A decent goal of consistency is averaging a profit factor of > or equal to +1.1

There are various threads and posts on futures.io (formerly BMT) discussing these ideas. Hope this helps.


Last edited by Cloudy; February 15th, 2013 at 10:35 AM.
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  #26 (permalink)
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Rudedog60 View Post
Interesting stuff.

Yes, absolutely.

'Incognito: The Secret Lives of The Brain' by David Eagleman is just brilliant in this area.

Also fascinating (at least for me ) are:

'The Geography of Thought: How Asians and Westerners Think Differently - And Why' by Richard Nisbett

'The Social Animal: A Story of How Success Happens' by David Brooks and

'The Righteous Mind: Why Good People Are Divided by Politics and Religion' by Jonathan Haidt

Non are books about trading. All are books that traders (with open eyes and open minds) can learn something about themselves from.

Have a great Week End!

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  #27 (permalink)
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wasn't able to trade off the open due to kid stuff, but then sat down right around 9:15ish. Noticed lower highs and lower lows on the advance / decline index. Tick also had lower highs. On the SPY chart, the price action had two prior failed attempts to break above the previous day high. On the third attempt it broke above and then immediately retraced (as did the ES). Price broke down through the SMA. Stochs confirmed. But most importantly the advance / decline index continued south. Shorted 600 shares - stop out on 200 (tight stop for 1st third of shares). Then hit target 2 and then 3.

Valid reasons or just whistling Dixie?

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  #28 (permalink)
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ratfink View Post
Yes, absolutely.

'Incognito: The Secret Lives of The Brain' by David Eagleman is just brilliant in this area.

Also fascinating (at least for me ) are:

'The Geography of Thought: How Asians and Westerners Think Differently - And Why' by Richard Nisbett

'The Social Animal: A Story of How Success Happens' by David Brooks and

'The Righteous Mind: Why Good People Are Divided by Politics and Religion' by Jonathan Haidt

Non are books about trading. All are books that traders (with open eyes and open minds) can learn something about themselves from.

Have a great Week End!

Thanks ratfink. Love that kind of stuff. I will definitely check them out. Have a good weekend yourself!

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  #29 (permalink)
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Rudedog60 View Post
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wasn't able to trade off the open due to kid stuff, but then sat down right around 9:15ish. Noticed lower highs and lower lows on the advance / decline index. Tick also had lower highs. On the SPY chart, the price action had two prior failed attempts to break above the previous day high. On the third attempt it broke above and then immediately retraced (as did the ES). Price broke down through the SMA. Stochs confirmed. But most importantly the advance / decline index continued south. Shorted 600 shares - stop out on 200 (tight stop for 1st third of shares). Then hit target 2 and then 3.

Valid reasons or just whistling Dixie?

I should have added that the price action then hit the prior close, which had been previous resistance and now is support, and turned north. Trade took about as much as it could for a scalp at that point.

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  #30 (permalink)
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Big Mike View Post
Yes, and @FuturesTrader71 has similar demonstrations in his material and has discussed this at length in his futures.io (formerly BMT) webinars. Highly recommend watching them for those who haven't, even if you have no desire to learn about auction theory, the rest of the risk/discipline/trade management discussion is extremely worthwhile in each of the webinars.

Mike

I remember having heard Dalton mention in one of his webinar to place a pin on a market profile chart for each trade you took at the end of a day session. He then mentionned by the location of your trades on a profile chart i can tell if you traded with an edge or not. According to Dalton trades initiated in the fat part of a profile place you in an unfavorable starting position diminishing your edge.

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