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Trading the 6E Old School, With a Twist


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Trading the 6E Old School, With a Twist

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  #1 (permalink)
 Cashish 
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There's no School like the Old School

If you find the title of this journal intriguing, I invite you to stick around, participate and watch it unfold. I've read several of the threads on Big Mike's Forum and noticed that many members are new traders searching for direction in a foreign and often intimidating place to conduct business. My intention with this thread is to help traders find their way through a lot of the nonsense and develop "Their Own" method/strategy for trading the (6E) market using Old School studies. Later, I'll add the "Twist." My trading is very light during the month of December and I've committed to this thread until the end of the year. So join in and participate.

You will find nothing new here, no renko charts, order flow, Murrey Math or cumulative delta. But I believe if you are willing to follow along and do a little homework, you'll find a better understanding of price movements and in turn this information may alleviate some of the intimidation and fears created when entering orders.

When to trade? and When can I trade?

A whole thread could be written about this subject, and many have been. But I feel these are two very important questions and I also believe many floundering traders could turn their trading results around by honestly answering them.

The short answer to this question is when the market is moving (trending), since I don't know when that is going to happen, I need to put the probabilities of the time of day price movements happen on my side. Another consideration is, when can I trade? If I find the best time of day to trade is when I'm at work or when I'm taking my children to school then I have other decisions to make. Trading is a job, it demands my time. Just as I was expected to be on the job by my previous employer at (N) O'clock sharp, I've found this discipline to hold true for my trading as well. Trading is a job, and it is not easy work,,,, and the hours are terrible!!!

Old School Homework 1

1. Calculate the average daily range (in ticks/points) of the 6E Dec contract for the last 3, 5, 10 and 20 days.
2. Identify the hour of each of the last 20 days that had the highest range.
3. Calculate the average range of each of those 1 hour time segments over a similar period 3, 5, 10 and 20 days.
4. Calculate the percentage of each days range within the highest 1 hour range of that day.
5. Identify your current trading time (TOD) and compare to the above results.
6. If you could trade any of the 6E's 23 hours of active trading, using the above information, what would your session (hours on the job) be?

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Great, looking forward to your journal

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  #4 (permalink)
 Cashish 
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There's no School like the Old School

IMO, finding an edge that fit my style of trading and my personality was the work of trading.

After calculating the data in Old School Homework 1 and identifying the time of day of the biggest moves of the entire 23 hour session, one hour stands out among all others. Over the last 20 trading days this one hour time period holds twice as many of the day's biggest moves than any other. The range of these one hour bars average 81 points and equate to an average greater than 50% of the entire day's trading range. Furthermore, the three one hour bars that follow hold another 25% of these big moves. In total 55% (11) of the largest moves over the last 20 days are within one, four hour segment of time. This means, 30% of the big moves happened during 4.3% of the trading day and 55% of these moves happened during 17% of the trading day. Blah, Blah, Blah,,,, So what, who trades 1 hour bars anyway? That's not the point, my intention was to present a method to identify a specific time of day to trade. A segment of time with the highest probability of an active market, which inturn offers tradable opportunities. How a trader adjusts his/her lifestyle to participate in a high probability time segment is of course a personal matter. Why do I get up in the middle of the night ? To quote Willy Sutton, "because that's where the money is."

If anyone actually did this simple exercise they may have noticed another interesting fact. I doubt anyone noticed it because, if they did do the exercise they probably just entered a few parameters in a simple moving average and looked at a few lines in a sub window and said, that's cool, and then changed the parameters again and went on about their business. Remember I'm old school, and I use a lot of paper, pens and adding machine tape. This works for me, I feel more connected to my studies when I can look at the results on an adding machine tape and then enter it into a notebook. If you've taken the time and accomplished Old School Homework 1 I congratulate you, you have identified an excellent trading session for most any type of trading.

Old School Homework 2

Trend Reaction Numbers
I don't think I'm the only trader that keeps a running list of these numbers on his desk pad. Of course I do the math on my calculator and write the numbers on my desk pad with a pen. This simple formula can make you or save you a lot of money, if used properly. This calculation is made from the prior day's High, Low and Close.

H + L + C
________ = X
3

2X -High = Buy Number (BN)
2X -Low = Sell Number (SN)

Like most things in trading these numbers seem to provide a contradictory purpose. The BN can serve as support in a rangebound market and also serve as a breakout sell number in a trending market. Vice versa for the SN, the SN can serve as resistence in a rangebound market and also serve as a breakout buy number in a trending market. I believe the 6E has multiple personalities, one for each of the three trading sessions. If you're a session trader like me, I suggest sticking with one sesion and learning it well. Many people speak of 10,000 hours of screen time, I don't buy into that with the 6E because the sessions trade so differently. If you think about it, traders come and go thoughout the day, I doubt there are many traders from Berlin trading the 6E at 1pm EST, OK, maybe one. My point is get to know your market, get to know the session you plan on trading. Then, like this morning, when right out of the gate the Euro fell 50 points taking a long under 3350 isn't so frightening.

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 rainbowchaser 
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Hello, just found the thread, sounds very articulated, thanks for the homeworks. Will work them out.
regards.
Ok Home work done, maybe biased on looking only to the Euro and NY session. All Times ET.

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 lemons 
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I got 8:00 GMT. Is it right ?
I have only M6E prices but is shoud be almost the same as 6E

I live in Europe it suits me well.

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 Cashish 
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There's no School like the Old School

Trend Reaction Numbers

I saw I needed to edit my last post, I totally omitted the significance of the
H + L + C = X number.
3

This number is referred to as the pivot point one of three significant numbers derived from this simple calculation. Using the formula in Old School Homework 2 I came to today's market with 3 price levels.

Sell Number (SN) 1.3467
Pivot 1.3420
Buy Number (BN) 1.3353

Since I've opted to create another post rather than edit the previous one, I wanted to give an example of "knowing your market." The 6E is full of surprises, it can rocket off in any direction with extreme intensity whenever the wind blows up Angela Merkel's pantsuit (e.g. yesterday afternoon EST). But it also has many tradable characteristic, one being price rotation around whole numbers (00s and 50s). I give the 6E a wide berth when prices slow down and rotate around whole numbers, I give it 16 points on both sides. If I plan on taking a short at even, I'll enter my order 16 ticks above and let price rotation work both sides of even and see if I can't get a fill. If this rotation begins to tighten up I may move part of my position closer. This morning was a great example, at 2am prices began to slide with some nice momentum, my BN was sitting on 3353, since this is 3 points off 50 I put my buy order under the market at 3335. I got filled on the first touch. When London traders came in they wanted a piece of the LONG pie too, and spooked the market 1 tick lower to 3333, that gave me 2 ticks of MAE.

Thanks, for all the thanks

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 rainbowchaser 
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Cashish View Post
There's no School like the Old School

Trend Reaction Numbers

I saw I needed to edit my last post, I totally omitted the significance of the
H + L + C = X number.
3

This number is referred to as the pivot point one of three significant numbers derived from this simple calculation. Using the formula in Old School Homework 2 I came to today's market with 3 price levels.

Sell Number (SN) 1.3467
Pivot 1.3420
Buy Number (BN) 1.3353

Since I've opted to create another post rather than edit the previous one, I wanted to give an example of "knowing your market." The 6E is full of surprises, it can rocket off in any direction with extreme intensity whenever the wind blows up Angela Merkel's pantsuit (e.g. yesterday afternoon EST). But it also has many tradable characteristic, one being price rotation around whole numbers (00s and 50s). I give the 6E a wide berth when prices slow down and rotate around whole numbers, I give it 16 points on both sides. If I plan on taking a short at even, I'll enter my order 16 ticks above and let price rotation work both sides of even and see if I can't get a fill. If this rotation begins to tighten up I may move part of my position closer. This morning was a great example, at 2am prices began to slide with some nice momentum, my BN was sitting on 3353, since this is 3 points off 50 I put my buy order under the market at 3335. I got filled on the first touch. When London traders came in they wanted a piece of the LONG pie too, and spooked the market 1 tick lower to 3333, that gave me 2 ticks of MAE.

Thanks, for all the thanks

Hi Cashish, already edited my previous post with the homework. Certainly the main action is before the London Open and extends just before lunch time NY. Of course these days news about the Euro have been pretty intense.
If you plz post a picture of this morning trade or entry that you are refering will be greatly appreciated. regards, Z.
Thanks for starting the thread. Looking forward for next steps.

ok according to your pivot formula the numbers derived from today's (12/6/2011) HLC are:
BN= 1.3353
Pivot= 1.3391
SN= 1.3449
Hope did it ok. I am going to plot them on my chart and will trade them tomorrow.
Thx.

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 rainbowchaser 
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This is the 60 min chart that was employed to come out with the stats for Homework 1. Of course I rounded the numbers and removed the decimals to make it cleaner. The green and red dotted limes are HOD and LOD. The black horizontal line is the London Open and the white one the cash close at 16:00ET. Those i always have on the charts but did not take part on the counting. Indeed the excercise helped to see where 90% of the action takes place. Nice homework, thx.

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 Cashish 
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There's no School like the Old School

Thanks fellas for your enthusiasm

I have a crude outline of what I wanted to cover in this thread during the month of December, my time is limited. I'll do my best to answer every question so please, ask away. Remember, this is not a trading method, it's nothing more than MY way of ascertaining when the highest probabilities for successful trading exist in the market. There's a lot of discretion in my trading style based on studies I've not covered. Therefore, I ask for your patience before I post any charts showing actual trades. I do feel, as I post more information the trades will become obvious if you follow along and understand the studies.

Quick Review

As you may have guessed I'm not a very geeky guy, I confess I envy those you are.

_CET___GMT___EST
__8______7_____2
__9______8_____3__XXXXXX
_10______9_____4__XX
_11_____10_____5__XX
_12_____11_____6__X
__1_____12_____7
__2______1_____8__XXX
__3______2_____9
__4______3____10__ X
__5______4____11__ XX
__6______5____12___X
__7______6_____1___XX

If you use your imagination, the table above is suppose to represent a bell curve. Well done @lemons and @rainbowchaser you both identified the London open as the "Prime Time" to catch a big bar (move).

To review I wanted to wave a flag of caution, when looking back in any market there are things to look out for. In this exercise I asked to go back 20 days, within that 20 day period there was a US Holiday, prior to that was the US time change, the European time change, another US Holiday and if you go further a rollover day, can you see my warning?

I also wanted to address the averages I requested, 3, 5, 10 and 20. Usually if you look at those averages the 5,10 and 20 will be within a few points of themselves, however the .. 3 .. will be skewed significantly, I use the lesser of the 20 or the average of the 5,10 and 20. As an example, today during the London "first hour" the market tagged today's SN 1.3448, if I entered there with a short position my target would be 81 points (the lesser of the averages) or 1.3367. I don't want to get into a debate over a few points on the average calculations but I use the High, Low and settle price posted on the CME Group website for my calculations. Another thought, "rounding numbers." I don't round them up or down (old school) my theory is, most moves in todays markets are augmented by computers and to a computer a number is a number, I don't think computers struggle with discretionary decisions like me, (e.g...should I take profits at the Pivot (1.3390) or 1.3373 or wait and hope for 1.3367 or 1.3352) ,,,, maybe they do.

A Synthetic Trading Session

What is all this nonsense about, tall bars, average moves, percent of this or that, who really gives a shit? I think the answer is nobody. The only reason I ran down this rabbit hole in first place was to find myself a time of day that put the probabilities for me to trade successfully in my favor, that's all. As I studied the "bell curve" I began focusing my efforts within that time frame. However, I found one important factor was omitted from the results, the German Open. When I began studying the effects of the 1 hour bar preceding the London open I found another mountain of statistics to evaluate. My findings where significant enough to base all my studies around the German open. For instance, did the German high hold against the London high this morning, how about the German low on Monday or the low of yesterday,,,, OK OK OK,,, give me a break. This brings up the topic of volume. I want to qualify my following statements here as my opinion, strongly, and I refuse to get into a pissing match over volume. Volume studies are an important part of my method, (the twist) and I plan on showing this at a later date. IMO, The volume numbers of the Forex Cash market is a mystery, as a futures trader I have accurate volume data from the CME for the contracts I trade. I also believe the futures market is the tail,,,, the DOG is the FX Cash Market. When the tail starts to wag (price moves) I have no way of knowing whether that dog is a Bullmastiff or a chiwawa, that's a fact I have to accept when trading futures. This is an important consideration at the open, during the time I'm watching the early range and my anticipated range. As the day progresses the "size of the dog" is usually revealed, and my volume studies come into their own.
This touches on the topic of uncertainty, which I plan to address this weekend.

So with all this information and the fact that I'm human and cannot sit (nor do I wish to) at my computer for 23 hours a day I defined my own trading session, 2am to 6am EST. I found it important to me to have a stopping point, a time to take off my traders hat and return to the role of husband and father. This works for me, but let it be known, I enjoy trading and given a weekend by myself, you'll find me right here grinding out numbers looking for a new mousetrap.

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