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Setups categorization
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Setups categorization

  #11 (permalink)
Market Wizard
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aquarian1 View Post
Whether you go back or just forward would depend upon your time and goals. If you have categories do you have a way of knowing (a journal with thought before the entry of what you were thinking it was e.g breakout?). Are you doing this to see how often they worked out?

Thanks aquarian1 and the answer to both your questions is yes. I have a journal (well it's a log with a comments section) where I jot down what I am thinking as I trade, or just once the trade is finished and the main purpose to this is to understand whether certain setups work better than others and of course to improve the ones that don't.

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  #12 (permalink)
The fun is in the numbers
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xplorer View Post
Thanks aquarian1 and the answer to both your questions is yes. I have a journal (well it's a log with a comments section) where I jot down what I am thinking as I trade, or just once the trade is finished and the main purpose to this is to understand whether certain setups work better than others and of course to improve the ones that don't.

Well, I think that puts you miles ahead of most people.
Knowing what you were thinking before you entered the trade is excellent.

-----------
Sometimes you might see a breakout for reasons:
A, B, C
and you were correct.

Then another time you might see a breakout for reasons:
A, B, C
and you were incorrect. So if this happens there may be factor D that distinguishes the two - existing in one and not in another.

(I guess the above is a bit obvious - oh well I try..LOL)

Good trading to everyone.
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  #13 (permalink)
The fun is in the numbers
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Your thread of setup categorization has me thinking.

First I was thinking about setup identification. It seems we often look at a chart and try to match what we see to a setup. This can be prone to us fitting what we see to one of our set-ups. Then we take action on that identification and get a result.

So we look at a chart and say "this is a breakout" for example.
Have we correctly identified a breakout?
Would someone else have looked at the chart and also concluded it was a breakout?
If our identification was faulty and we trade a breakout and then have a result
losing trade/ winning trade

We keep score and then conclude 40& of breakouts are winning trades. Our conclusion is based on several things including correct setup identification (which could have been correct sometimes and faulty sometimes). If the identification was always correct we might experience 65% of breakouts as winning trades.

Good trading to everyone.
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  #14 (permalink)
The fun is in the numbers
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What about "reverse engineering" it?

We could identify (after the fact) after the fact a setup, e.g breakout trades. Then we could go back and take chart snaps up to the breakout time.

We could stack the charts vertically (each of the same minutes per bar and time length).
We could then see in how many cases condition A only existed, B only, C only, conditions A&B, condition B&C, condition A&C, conditions A,B,C
, none of the conditions A,B,C.

When we have group them (the setup charts) e.g A&B we can pull up a (setup result charts) and see commonalities in setup result charts (e.g 3 times band width)

Good trading to everyone.
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  #15 (permalink)
Market Wizard
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aquarian1 View Post
Your thread of setup categorization has me thinking.

First I was thinking about setup identification. It seems we often look at a chart and try to match what we see to a setup. This can be prone to us fitting what we see to one of our set-ups. Then we take action on that identification and get a result.

So we look at a chart and say "this is a breakout" for example.
Have we correctly identified a breakout?
Would someone else have looked at the chart and also concluded it was a breakout?
If our identification was faulty and we trade a breakout and then have a result
losing trade/ winning trade
Yep, the above are good points. From my perspective, certain setups would be defined in such a way that anyone would generally agree they fall under a given category. So for instance a breakout would be defined as price being in a range for a given amount of time and then breaking out of that range, and so on.

We keep score and then conclude 40& of breakouts are winning trades. Our conclusion is based on several things including correct setup identification (which could have been correct sometimes and faulty sometimes). If the identification was always correct we might experience 65% of breakouts as winning trades.

Thanks aquarian1 - my thoughts above in bold

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  #16 (permalink)
Market Wizard
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aquarian1 View Post
What about "reverse engineering" it?

We could identify (after the fact) after the fact a setup, e.g breakout trades. Then we could go back and take chart snaps up to the breakout time.

We could stack the charts vertically (each of the same minutes per bar and time length).
We could then see in how many cases condition A only existed, B only, C only, conditions A&B, condition B&C, condition A&C, conditions A,B,C
, none of the conditions A,B,C.

When we have group them (the setup charts) e.g A&B we can pull up a (setup result charts) and see commonalities in setup result charts (e.g 3 times band width)

Indeed - the 'reverse engineering' bit is what I refer to as looking at past trades.

I do already take snapshots of my trades and keep them in my trade log.

The idea of grouping them together sounds interesting, although I wonder how we define the conditions.

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  #17 (permalink)
The fun is in the numbers
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xplorer View Post
Indeed - the 'reverse engineering' bit is what I refer to as looking at past trades.

I do already take snapshots of my trades and keep them in my trade log.

The idea of grouping them together sounds interesting, although I wonder how we define the conditions.

So difficulty in "defining the conditions" (DTC) is why I put in the post about reverse engineering.

----
Here is an example with possible steps:
Step 1. Use a LT time frame chart to find results (Here 30min and two results)
  1. CITD (change in trend Down to up)
  2. RBO (resistance level breakout) - in contrast to a horizontal channel breakout

Step 2. Take a snap of a set bar (e.g 5 min) proceeding the event.
(eg. 2139.75 about 2am for the RBO)

Step 3. If is applies - look for prior invalid cases (marked as A & B)

(with step 2 and 3 you are finding the conditions -here I am doing one full bar above the breakout level and that the bar must be green.)

So this reverse approach gave conditions
A. full bar above BO level
B. bar must be green

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-----next post -- target price
Step 4. Find the resultant move ( High=2149.00 2149-3139.75=9.75pts
and see if you have a way to estimate the target.

Good trading to everyone.
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  #18 (permalink)
The fun is in the numbers
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-- target price

I think it is important to have a way to determine the target price.
--both for trade management and for valid resultant definition (so if we are only looking for RBO that carry enough to be worthwhile we need a definition of worthwhile. (e.g. 6pts) so a breakout that is not at least 6pts we will say is not a breakout.

Here I have done 1/2 the fall (17pts/2= 8.5) added to the BOL of 2139.75 giving a target of 2148.25 which is .50 from the best possible sell price of 2148.75.

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Good trading to everyone.
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  #19 (permalink)
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Thank you aquarian - it's probably the late hour but I can't process it right now. I will definitely look at it tomorrow though.

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  #20 (permalink)
The fun is in the numbers
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I guess what I was trying to show was an example of finding a setup after the fact.

So looking for a valid breakout - assuming 9pts is valid - pretty scimpy - and going back to look for ways to spot it and see if conditions can be found that eliminate taking "false setups" from the valid. I think it is key though to add the element of measurement.

Without measurement we can't really trade usefully as we don't know our RR and so risk management and money management can't be done.

So another way to categorize setups is by movement
6pointers
12 pointers
etc

time to complete a move could be another way

(Perhaps these are subcategories of types or screens for worthwhile and not worthwhile)

-so for myself I won't take a setup without a 6 pt profit potential

Good trading to everyone.
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