(2) Countertrend trades - a reversal long - make sense when volatility is about to decline. I am not thinking countertrend, when the market opens. You will also notice that the VWAP bands are no more horizontal but have started to expand. This is not what you want to see if you enter a countertrend trade. And if at all I think countertrend around the market open I would not take any within the noise bands.
(3) The VWAP standard deviation bands have an empty zone, which is the black zone not colored. I do not take any trades within this zone, as
-> it is too late to enter a with-trend trade
-> too early to enter a countertrade
The reversal bars were plotting in that empty zone.
Lots of arguments to forego a reversal long, however there is nothing that stands against exiting a short trade and later reenter at a better price.
The following 6 users say Thank You to Fat Tails for this post:
Thanks for explaining your approach there. My last clear trade was the oatmeal trade that I missed short from 1.3050. The possible re-entry short was 1.3035ish but I am adjusting to the "black zone" as you describe as a no trade area. That said, sell more there (1.3035 area) and a profit locking stop around the low of that last hour auction bar would have been the the decision point had I been on the initial short.
Thank you for the insight around S1 as well. I am hopeful that as guys post their opinion that I can combine that with my view and your approach to craft a personal "user's manual" for the fs series.
One thing that I need to amend is my floor trader psychology that I need to be on EVERY trade. I continue to focus on the bottom 20% in the hope of reforming to the point where I am avoiding small winners.
The following user says Thank You to wldman for this post:
You asked earlier about your decision making technique and as to whether you
a. look for an order of things or
b. look for a confluence (i.e. just a lot of things to be true at the same time irrespective of the order in which they happened)
Looking at your trades this morning I sense that you are indeed out of balance.
First things first, I like the question. I aspire to operate as an "IF ... THEN" trader (and indeed there are signs that it is happening). To do this we need clear rules. So I spent a lot of time writing down my rules and in the end I have had to code them myself.
My feeling on this subject is that it doesn't matter whether your system relies on order or just all the barriers being clear. The only thing that matters for now is whether you are in fact following rules consistently. Are you ignoring signals or taking counter trend trades and getting away with it sometimes? If so, it is bound to mess with your inner ear.
If one of your rules is to trade with the trend, then was your long of this morning really with the trend ? It looked like a countertrend trade (long below the VWAP and below the EMA??)
Your oatmeal trade that you missed. I think you missed it because you had a "long" mindset and then the "with trend" trade mugged you.
Can you check your rules and tell me if your first trade blinded you ?
I have blinded myself with a few of these !! :-)
We used to call this PEBKAC - problem exists between keyboard and chair !
Last edited by podski; April 22nd, 2013 at 11:48 AM.
The following user says Thank You to podski for this post:
Not so much out of balance more like pissed off I was in the kitchen making oatmeal. It is the steel cut type so it simmers for 30 minutes...lol
So as an "if...then" guy as you describe here mentioning rules and coding... are you discretionary or algorithmic in your approach? Algo here, does not have to refer to electronically automated. You method could be mostly systematic.
What I am doing here is completely discretionary. I don't have methodological rules or a specific if/then proposition for trade entry. I do apply a rule standard to stop loss, however. The trade entries are more of a confluence and they take into account things like fundamentals, time of day, view on risk/reward etc.
So things are consistent to a degree but not rules based per se. Counter trend trades have a higher standard, but I will and do trade counter trend. Counter trend propositions are about 50/50 so I guess I could consider that again, but losers are killed little so counter trend is productive.
The long was against trend, yes.
On being blinded...no the initial trade in the discussion is just a trade.
I do from time to time trade consistent with my beliefs about direction (what I think as opposed to what I see reflected in price)...I make it worse when I am certain too. Ultimately all the entries are right, it is where you exit that confirms your fate. Of course I want specific, solid, profitable entries that I can duplicate....not randomness that I managed well.
Do you think I might benefit from hard entry rules?
by it's very nature follows his own code. No rules, except his...lol
I do not think that hard rules, as most people describe them, are useful for me at this stage in the game. That said, I will be interested in what you share in the morning.
The most simple "rules based" idea being something like..."when this crosses over this and this reading is > this, then buy?" is something that I tend to avoid. I understand the value for sure, but I believe there is a time and a place for that in an evolutionary process as a trader. Most of it becomes discretion over time?
Well, for my particular example, the divergence very closely related to price, so it in and of itself is a signal, but I will only initiate a position if test highs (lows) in conjunction with the divergence.
Also, this was not just something I stumbled over one day, it was just used to visualize a specific concept that I already understood. Which was "quality of trading" or "price facilitation" or "balance" or " an increase in liquidity" or "decrease in volatility" Even then the only reason for me to visualize the concept better was for two reasons, first to expand the analysis to other markets and start thinking about broadening my horizons, second, to do a little guilty pleasure backtesting with some accuracy.