there is so much on your chart that I don't know where it is. Can you explain everything on your chart and/or provide a link to more info about your real stats? I like how you're working indicators for non-price data, that is very cool and I'd like to learn more.
No trading on the dax this week except maybe wednesday. I use my time while my daughter is riding for studying. which is what leads me today.
After researching and studying my trades over the past week I concluded that trade location is the item I need to work on the most. I believe trade location is the single most important factor in trading. This is why I turned to market profile. But if you're not into market profile you can do it other ways.
I first learned about this from a guy at ET. He used a 4 hour chart to draw horizontal lines on all pivots. A pivot being where price turned around (a high or low). He'd then try and trade around these levels. He used a bollinger bands to fade moves that came up on these pivots. He was expecting traders to trade at these numbers. And he did well with it. At the time I was fixed on automation and I couldn't automate it so I kind of put it aside but the concept is very valid.
Market profile helps to do this as well but adds a volume element to it. But it's the same idea really. Find a price level where you expect buying or selling and then use any timing method you want to enter.
Yesterday I wrote a rather lengthy reply to BigMike in his advice column. I think it's an important post so I encourage you to read it. In it I basically say indicators are not bad you just shouldn't use them alone for trade decisions.
So let's say you see a big pivot at 85.50 on crude. Price went down, hit 85.50 and then went up. So obviously there were buyers at 85.50 right? If there were sellers price would have went down so we know it was buying.
Now a few days later price is at 90 and headed towards 85.50. Wouldn't 85.50 be a great place to go long??
Price comes down to 86 and you're ready. Now here's the kicker: You can use any timing method you want to enter as long as you enter around 85.50 you stand a very good chance of a winning trade.
In her book Trading with the Odds Cynthia Kase uses a moving average crossover as her timing signal. Simple right? But it works for her because she only trades when she has setups on the bigger picture.
So price comes to 85.50. You can wait for a cycle setup, a moving average crossover, macd divergence, stochastics to turn up from below 20, a trapped sellers setup on the volume ladder, etc. Whatever you want. it doesn't matter. If you trade in the right place in the right direction then you should have a higher probability of winning than losing.
But if you take every cycle setup or every ma crossover you're going to lose. So indicators are just one piece of the puzzle and not even the most important piece!
So give it a try. Find your pivots on an hourly or 4hour chart and mark them off. Use a simple ma crossover at those pivot points when price retests them and see for yourself. Share your results. I think you'll be surprised.
So if you look at my indicators and think that there's no edge there, there probably isn't. unless of course you're trading at the right place.
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Today Kam in the l2st room went to 2 contracts just to show us about reducing risk by scaling out. So I did too. And had my best day yet. I attribute this to 3 things:
- trading 2 contracts lets me scale out and reduce risks
- I was paying special attention to trade location
- I told myself before the session that I was not going to worry about my PL. I was going to take any setup that looked like it could work for me and the PL would be whatever it would be. And it did work.
I post my POT chart just because it has my trade markers. I did mark some notes on a few trades and also on some POT signals. The POT is the same as any other indicator. If you take every signal you'll probably lose, but if you take it in the right places it can be another piece of information to help confirm your trades.
Obviously commissions are high but I think it's manageable. The next step will be to move the 2nd target out farther and/or add a 3rd to catch the big moves. And to do that trade location is more important than anything.
Let me know if you have questions or comments. Good trading everyone.
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Here's my daily chart. TPO gave a signal but it was late, that's highly unusual so I think it is a signal for more buying. This is an instance where you just shrug your shoulders and look to other information, which for me is the 135min & 45min. Look at the blue bars on the way down. Those were pro activity. And that means the pros were buying. So likely the TPO did give us a 1 bar warning which is the average. I'm still learning this one so it'll take some time to trust it but so far it has worked well.
135min will give a cycle cross any minute and that'll signal the up cycle. 45min is already going up, probably will cycle down again for #1 setup or breakout for #2. Monthly (not shown but look on previous charts) is near a cross but that could be weeks away.
Rally is not over yet.
I plan to incorporate Market Profile into my swing trading but I still have some work to do..
Yeah, I call it "trading horizontal lines," identifying points of potential support and resistance, and deciding what you're going to do once price gets there. The guys in the MTG chat room, while day trading ES, usually say that a price level isn't truly violated unless it's moved 2pts beyond it, otherwise, it's valid S/R. This can be debated, and I'm not sure I totally agree with it (haven't tested it), but with this approach you can enter a position at or a little beyond the level with a tight stop and have an advantageous risk/reward ratio. This is why I like Ninja's built-in Swing indicator: it plots most of the levels I want to watch for me.
Some traders trade pivots by looking at a momentum indicator, say, the CCI, and if the CCI is not at a very high or at an extreme reading when the price level is reached it's likely to hold as S/R. Also, if you look at volume when the level is reached and it's not large or extreme it'll likely hold as well, however, I've seen a level breached on weakness and it attracts more with-trend followers as the level is totally violated. I see this more frequently on forex futures (6E).
After posting this chart I'm wondering why I don't trade more like this. It probably has to due with the fact that these events don't happen too often and I only trade 1-2hrs a day, though I do take price level penetrations on high-volume but I should add some momentum indicator to help me gauge if there's enough thrust behind the move, in addition to volume. This certainly would be worth-while looking into automating. The problem is that sometimes you can get a blow-off top/capitulation move at the end of the trend that has a lot of momentum and volume, but then reverses, so it depends on how far the trend has already moved. At that point you can look to your typical candlestick patterns to see if a reversal is in order or not, like the attached 6E trade I considered taking this morning but didn't.
Last edited by shodson; April 19th, 2010 at 04:58 PM.
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Hey Shodson good info there and it's interesting to see you use a similar idea but in a different way. I see you're using a 5min chart.. if you have time try marking horizontal lines on a 4 hour chart (or hourly or whatever you want, but 4 hour will catch the big ones) and then trade off those on the 5min. I think you'll get better reaction to the bigger levels.
Good ideas on gauging the strength of the move as it approaches the S/R level. That's exactly how we can tell if the market is likely to react. I said "likely" cause we never know right? That's why I reward:risk ratio skewed in our direction (2-3:1) will make us winners.
Finally these levels are sometimes exact but not always, so I like to have a range around them. The range is flexible, if it's a pivot point then a few points like you said for ES. Sometimes I miss a trade cause it turns "early" or sometimes I don't take it cause it turns "late" and I think it was broken when it was not really broken. But with practice it gets easier.
Yesterday's chart for ES with my latest indicator. I don't know what to call it so for now I call it Value Line.
Orange dotted lines are the main directional moves of value
Orange solid lines are small move of value
purple solid are small price moves of value
now these don't line up cause the scales are slightly different, mostly due to the overnight session which I don't take into account. they should be on two different panels but it makes it easier to see them together.
there are two divergence patterns circled in green. in both cases price made a LL while value made a HH.
I'm still testing this and haven't really been using it real time but I will try to do that starting today and hopefully see a setup real time. There doesn't seem to be any interest so I guess I'll write about other things..