I have spent a lot of time recently trying to accumulate stats regarding certain criteria in regards to entries and management of trades, I have struggled at times and I have often been distracted by watching the market as it happens and seeing how the numbers stack up. Though it has been tedious I have found it interesting trying to differentiate between the trades that work versus the trades that don't, it has very much been a case of looking for examples of something and trying to figure out what happens next.
The biggest observation (which is nothing new but it reinforces what I already know) to come from this is more to do with behaviour around entries, what do I expect to see in this situation, if there is intent behind the move it goes, it just goes, there is no waffling or confusion over what is happening the behaviour is clear and decisive.
One would have to question what they are looking at against what they expect to see, if a trader for example is trading a breakout and price has done enough to get them involved does the subsequent PA behave as a breakout should, and if it is not one would have to ask if this is a trade they still want to be in.
So back to the numbers, application with discretion springs to mind when it comes to moving forward and I will detail thought behind each number.
Trend break continuations: 3 points.
I expect a rally or drop to break its stride as it progresses, 3 points is the average the line can be pushed with the trend remaining intact. I did say 4 points earlier would work but I went looking for more examples and the average dropped to 3.
The breaking of the stride by more than 3 points does not signify a change of trend, it is only more likely that a change will happen. Watch how price interacts with the swing points that constitute the break.
Trend break reversal entry leg: 7 points.
Price has now broken stride and has retraced forming a lower high or higher low, one takes the trade per entry criteria, how far can a trader expect price to move before it comes back on the entry. I plan on entering trades with 2 lots and taking the first off on the entry leg and managing the other, However I will be tracking the alternative of this versus an all in all out approach.
A traders entry is irrelevant the measurement is from swing point to swing point, depending in how one enters the trade the first contract might be taken off after 3 or 4 points or less. Even though a 7 point move might be expected it does not mean that it will, watch how price interacts with the previous swing points, price may range.
Range poke: 1.5 points.
How far can a range or swing point be pushed but hold, 1.5 points, beyond that and one moves into the territory of breakouts and continuations, an order to trade breakouts could be left 7-8 ticks beyond the range extremes to catch a breakout.
Very important to pay attention to what happens next, price can move beyond 2 points then stall and hang around sometimes for hours, however, when there is intent behind the move it does not. If price gets to an extreme the move away is often decisive, if it is not, one would have to question their participation in the trade.
Breakout entry leg post retrace: 11.5 points.
Had a harder time defining the MFE to a breakout, a lot of the breakouts would often BO by 1,2 or 3 points before making a retrace of some kind (rarely noticeable on a 5 minute chart) but seeing as entries would boil down to a 1 minute chart I felt I had to include the rets as part of the breakout.
It seems a large number but I guess it is a reflection of traders intent to move on and find value.
I will start applying this 1 bar at a time on my next posts.
Last edited by Gozilla; June 29th, 2015 at 10:45 PM.
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Putting all this together will take time and I will make mistakes but, there are a few things I am picking up on.
I am at a point now where I don't try to rely on the lines as much as I have, a 2 point break of stride is more likely to result in a continuation, but, I still watch what price is doing, the fact price has broken stride is a warning that there is a change happening, I watch to see if it forms a LH/HL or a DT/DB or even if price pushes the previous swing point confirming a continuation that then rejects forming a DOG.
There is also context to consider and how price gets there (AMT), does it grind its way there or is there a frenzy of activity, and how does it behave when it gets there. It all comes down to the tactics one chooses to use as the day unfolds.
I push myself to think differently to how I have done in the past, I don't want what I think should happen to blind me to what is actually happening, the opportunity can pass in an instant whilst one struggles with their bias.
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Even after following DBs stuff for several years now I never really understood that the amount of points after a break of a line could be a main ingredient that has to be backtested. So thanks for that...
At the end this should create a framework wherein one can act. And acting means watching in real time, listening to the tells of the market and also simply being available. And then doing it over and over again. This apart from the process of development for me is the hardest part...
Keep up the good work!
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@DbPhoenix This was a question pertaining to larger breaks of a DL/SL, I observed that one would often see increasing breaks and a flattening of PA once price gets to an area of context/AMT, but outside of context how would one deal with this in real time?
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It's been so long that I had forgotten, and I didn't know that you had returned to your journal. If you have questions, you'll have to ask them in my thread or use my name somehow.
What I probably had in mind was introducing some flexibility into your exit, or at least your stop. Of course, if you're trading multiple contracts, it's not a big deal. Otherwise, you want to stay as long as possible.
The tapering on the chart that I was referring to when I made that statement is easy to see, even in real time. If nothing else, your demand lines keep getting broken. At some point, though, the break will be more severe, and at that point you have some choices to make.
If you're including AMT in your trading, you'll have at least some idea of how far you can expect price to go without introducing hope into the equation. I believe in that case it was the HOD. Good enough. If price goes sideways, which it often does, particularly if it's forming a springboard to a further advance, you can move your stop to N points -- 3.5 again, if you like -- below the new range. If instead price comes back toward you, you can allow it to make a swing point if you can stand it (if you can't, then just exit), then place your stop below that swing point. If it rallies back to the level where it broke the demand line in the first place, fine. But if it chokes and resumes its decline, taking out your stop in the meantime, also fine. You've made enough. Don't be greedy. The goal is to stay in the trade as long as possible. The objective is to do it with as little potential damage to yourself as possible.
Time of day is also a factor, of course. If it's late in the day and you're reaching the HOD, to hell with it. Just take it and be happy, unless you're in the special position of being at a spot where holding overnight makes sense, like if you just rejected an important extreme.
Last edited by DbPhoenix; July 4th, 2015 at 04:12 PM.
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I think I got a little sidetracked in the intraday thread looking to see how the stats stack up live, whilst they held up well, I am increasingly waiting to see if the trend can remain intact. The numbers I have collected only allude to what is most probable not what is definite.
I guess when it comes to the crunch a lot of it comes down to an individuals risk tolerance and how much they can endure a pullback that might break the trend.
I am planning on starting another thread for testing the plan as I don't want to bury my thread in charts, and I will look to do around 200 trades (possibly more) detailing everyone I take. Starting with a bar by bar backtest then moving onto replay then sim and if the results stay on track back to the live ring.
Its not so much the plan that needs to be tested, I need to be tested as well, as it will not do as well as I think it will if my wheels keep dropping off.
Last edited by Gozilla; July 5th, 2015 at 09:44 PM.
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I don't know how many times I said it in the book, but the SLA is intended for beginners and fearful traders. As long as one follow the rules, he'll make money. As one might imagine, fearful traders have far more difficulty with this than beginners do. But one who pursues it eventually leaves it, just as one who is living at home eventually -- one hopes -- leaves it and strikes out on his own. I've assumed from the beginning that one who studies it and applies it rigorously will learn enough about how price moves -- even if that learning is largely unintentional -- so that he can begin to explore the nuances of it, nuances which are beyond the reach of the intended audience. A beginner -- at least at the beginning -- is not going to concern himself with enduring pullbacks, nor is he expected to. A fearful trader isn't even going to try. It is only those who have moved past all that who will pursue the "why" and begin to explore the nature of price movement itself, which will eventually involve the study of behavior, particularly fear (which brings us back to Appendix F).
What you're doing is moving beyond the SLA toward areas that most won't even bother with. But that doesn't mean that the SLA serves no purpose. The SLA is, again, training wheels. One expects those who stick with it to take them off at some point and move more freely.
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