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Pull back vs Trend reversal


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Pull back vs Trend reversal

  #11 (permalink)
 
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 Brandenton 
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sadago View Post
Brandenton,

Thanks for the example. In this euro chart this is what I would have done.

On Oct 2nd, seeing that big bull bar enter long with a stop loss marked around immediate low bar prior to this long bull bar. Now that stop loss would have triggered on Oct 9th, with most of the time my trade is hovering around fractional profit/loss. Just as I watch, the market in the coming days zooms in the long trend making me to bite my nails and cursing my bad luck -

Now, typically I dont hold positions overnight, but this exact picture repeats during intraday cycle too.

If you took the long on Oct 2, your trading the immediate order flow. So don’t focus on the longer term. Regardless of the price action your trading, immediate, intraday or longer term, the trend will continue about 70% of the time. So just focus on the one your trading.

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  #12 (permalink)
 
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 Brandenton 
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With all that said from my last post, I don’t know how or what you trade. Just some feedback from how I trade. If you use different time frames or different order flows to do your analysis, so be it. If it’s profitable, keep trading it.

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  #13 (permalink)
sadago
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Brandenton View Post
With all that said from my last post, I don’t know how or what you trade. Just some feedback from how I trade. If you use different time frames or different order flows to do your analysis, so be it. If it’s profitable, keep trading it.

I trade NQ and AUDUSD - both intraday. Use 10 mins chart(for entry) and 1 hour chart(to draw trends).

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  #14 (permalink)
 
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 GruttePier 
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Agreed with @MiniP that you should not look at a single candle to determine if there is a reversal or pullback in the making.

In the case of a reversal from bullish to bearish, I look at the following:
- I'd like to see price create a HOD just above a price level like floor trader pivot, high value node, yesterday's high/low/close, etc
- Price then creates a higher low below this level and then tries to break this price level or the HOD
- An area of sideways chop starts to form
- Volume decreases on the attempt to break the price level / HOD
- In case of ES, I'd like to see weakness coming in
- I'd like to see the big sellers taking over from the buyers on the tape
- After the failed attempt, I'd like to see price moving down easilly and volume increase

If the criteria aren't met or if I'm not convinced, I skip the setup.

Depending on how convinced I am about the reversal, I fade near the high of the chop area (just under the price level / HOD) and scale in when price breaks below the higher low.
I scale out around R1 and price levels like VWAP, OR, floor trader pivots, etc.

It doesn't work all the time ofcourse, but most of the time it does and as long as my winners are higher than the losers it's ok.


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  #15 (permalink)
 
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 MiniP 
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GruttePier View Post
Agreed with @MiniP that you should not look at a single candle to determine if there is a reversal or pullback in the making.

In the case of a reversal from bullish to bearish, I look at the following:
- I'd like to see price create a HOD just above a price level like floor trader pivot, high value node, yesterday's high/low/close, etc
- Price then creates a higher low below this level and then tries to break this price level or the HOD
- An area of sideways chop starts to form
- Volume decreases on the attempt to break the price level / HOD
- In case of ES, I'd like to see weakness coming in
- I'd like to see the big sellers taking over from the buyers on the tape
- After the failed attempt, I'd like to see price moving down easilly and volume increase

If the criteria aren't met or if I'm not convinced, I skip the setup.

Depending on how convinced I am about the reversal, I fade near the high of the chop area (just under the price level / HOD) and scale in when price breaks below the higher low.
I scale out around R1 and price levels like VWAP, OR, floor trader pivots, etc.

It doesn't work all the time ofcourse, but most of the time it does and as long as my winners are higher than the losers it's ok.


even though your fading the near the HOD, that was the beginning of a bearish trend on a lower TF you can see by the fake break out that is represented on your time frame by the bearish engulfing and made a nice LH.. One of my favorite trades

just how I see things not saying your wrong FYI

-P

"Truth is not what you want it to be; it is what it is, and you must bend to its power or live a lie"-Miyamoto Musashi
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  #16 (permalink)
 
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 JonnyBoy 
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sadago View Post
You have exactly given the background reason for my question. Quite a few times, i see stop loss getting triggered and watching it to go exactly in the predicted direction alas hitting the target price too. Can’t keep increasing the stop loss as it skews the risk/reward.

Have you thought about calculating the harmonic rotation of the instrument you are trading? This can be very helpful in determining where your stop should be placed to keep you out of the market noise during the natural rotation of price.

For example, the most frequent rotation for the ES is 1 point. You then want to look at the 1st and 2nd standard deviations of that, hence, harmonic rotations of 1.75 points and less make up 68.2% of all rotations while rotations of 3.5 points and less make up 95.4% of all rotations.

Your stop loss should be wide enough to handle enough rotations before your (or what you hope) will be your direction taking hold. If you enter after a 1 point pullback, a 2 point stop should keep you in on 68.2% of all rotations. This is for the ES instrument of course so you will need to do your own calculation.

It is simple to calculate and the great news is that if done correctly over a decent data set, we will both calculate the same number, meaning it isn't subjective.

The caveat - if your entry method sucks this won't help you not getting stopped out, rather it tells you need to work on a better entry method.

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  #17 (permalink)
 
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 Popsicle 
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JonnyBoy View Post
Have you thought about calculating the harmonic rotation of the instrument you are trading?

This is a very interesting concept, makes lots of sense. Can you maybe point us in a direction for calculating for an instrument? Would be highly appreciated.

Edit : after reading my post thought I should clarify what I meant. Not calculating the standard deviations, I meant how to calculate the typical rotation.

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  #18 (permalink)
 
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 JonnyBoy 
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Popsicle View Post
This is a very interesting concept, makes lots of sense. Can you maybe point us in a direction for calculating for an instrument? Would be highly appreciated.

Edit : after reading my post thought I should clarify what I meant. Not calculating the standard deviations, I meant how to calculate the typical rotation.

You can start with what FT71 put together. My results were slightly different than his, but I put that down to perhaps the data set used. However, a few traders I know have done this independently on the ES and our results were virtually identical. You just need to know Excel and perhaps Visual Studio depending on what you want to do with the data and how you want to represent it.

https://futurestrader71.com/under-construction/

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  #19 (permalink)
sadago
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JonnyBoy View Post
Have you thought about calculating the harmonic rotation of the instrument you are trading? This can be very helpful in determining where your stop should be placed to keep you out of the market noise during the natural rotation of price.

For example, the most frequent rotation for the ES is 1 point. You then want to look at the 1st and 2nd standard deviations of that, hence, harmonic rotations of 1.75 points and less make up 68.2% of all rotations while rotations of 3.5 points and less make up 95.4% of all rotations.

Your stop loss should be wide enough to handle enough rotations before your (or what you hope) will be your direction taking hold. If you enter after a 1 point pullback, a 2 point stop should keep you in on 68.2% of all rotations. This is for the ES instrument of course so you will need to do your own calculation.

It is simple to calculate and the great news is that if done correctly over a decent data set, we will both calculate the same number, meaning it isn't subjective.

The caveat - if your entry method sucks this won't help you not getting stopped out, rather it tells you need to work on a better entry method.

Hearing it first time!! Will investigate. Thanks!!

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  #20 (permalink)
 
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 bobwest 
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JonnyBoy View Post
Have you thought about calculating the harmonic rotation of the instrument you are trading? This can be very helpful in determining where your stop should be placed to keep you out of the market noise during the natural rotation of price.

For example, the most frequent rotation for the ES is 1 point. You then want to look at the 1st and 2nd standard deviations of that, hence, harmonic rotations of 1.75 points and less make up 68.2% of all rotations while rotations of 3.5 points and less make up 95.4% of all rotations.


JonnyBoy View Post
You can start with what FT71 put together. My results were slightly different than his, but I put that down to perhaps the data set used. However, a few traders I know have done this independently on the ES and our results were virtually identical....

https://futurestrader71.com/under-construction/

Purely on an eyeballing basis, I have noticed that I can't effectively trade ES if the recent moves are not above 3 or 4 points, and I take that as an indication of a too-tight range -- so this agrees, on an imprecise but practical basis, with @JonnyBoy's calculations.

I think this pretty much defines what "noise" is on ES, at least if you're a trend trader, as I am. If you're a scalper, and your entries are good ones, it may define your take-profit target, on the assumption that this is the extent of an average short-term move. Your use of this phenomenon may depend on your trading preference.

For YM I similarly use 30+ points as a standard (this is equivalent to 3+ on ES in dollar terms), and the two contracts are close enough that this works out too. Other futures will be more or less volatile, of course, and will need different standards.

Bob.

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Last Updated on January 19, 2020


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