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Price Action Observations
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Price Action Observations

  #31 (permalink)
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I have been doing some work behind the scene regarding to replay the trend and non trend days and also the replay of the winners in order to identify clearly the behavior, in any case I have a doubt regarding to the next quote



lajx View Post
This post is going to be used as a way to keep some observations regarding to the price action, specifically is going to answer some questions done by DbPhoenix and are stated below:

What is the optimal distance for your stop? Under what conditions is a tight stop possible? Are wide stops being used as a rationale for less-than-optimal entries? (Regardless of what the guru wannabees preach, correct entries are essential; the correct entry will put you in profit immediately.)


What do the numbers tell you about the desirability of using a wide stop and hoping for the best as opposed to using a tight one and re-entering after a failure? How many times are you allowing a trade to fail before you stop trying?

I hope you @DbPhoenix can give me some guide about it; like the guide you gave in the thread of godzilla about the arithmetical integrity of a directional movement. it would be very useful at this point that I have modified my entry regarding to the # of ticks.

Regards

Lajax.

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  #32 (permalink)
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lajx View Post
I hope you @DbPhoenix can give me some guide about it;

What exactly do you mean by "it"? If you're not careful and specific about exactly what it is you're looking for, you are not likely to find it.

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  #33 (permalink)
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DbPhoenix View Post
What exactly do you mean by "it"? If you're not careful and specific about exactly what it is you're looking for, you are not likely to find it.



I mean regarding to the questions that are quoted, specifically the next points:

What is the optimal distance for your stop? About this question, the answer could come after analyzing the MAE of the winners and loser trades?


Under what conditions is a tight stop possible? About this do you refer to the conditions that the context offers such as the closeness of the price to an important level of S/R or if the trade is taken in order to enter at the beginning of a trend or a trend continuation trade?

What do the numbers tell you about the desirability of using a wide stop and hoping for the best as opposed to using a tight one and re-entering after a failure? When you said the “numbers” what kind of data do you analyze (e.g. MFE,MAE etc.) and when you refer to wide stops what would be the objective number or value (from your expertise in this market) to determinate something as a “wide” or “tight” stop


Thanks in advance for your help


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  #34 (permalink)
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lajx View Post
I mean regarding to the questions that are quoted, specifically the next points:

What is the optimal distance for your stop? About this question, the answer could come after analyzing the MAE of the winners and loser trades?


Under what conditions is a tight stop possible? About this do you refer to the conditions that the context offers such as the closeness of the price to an important level of S/R or if the trade is taken in order to enter at the beginning of a trend or a trend continuation trade?

What do the numbers tell you about the desirability of using a wide stop and hoping for the best as opposed to using a tight one and re-entering after a failure? When you said the “numbers” what kind of data do you analyze (e.g. MFE,MAE etc.) and when you refer to wide stops what would be the objective number or value (from your expertise in this market) to determinate something as a “wide” or “tight” stop


Thanks in advance for your help


Taking these one at a time, first first, determine what constitutes a successful trade. If you go long, it is reasonable to define success as price moving in the desired direction rather than making a new low. Therefore, if the danger point is what appears at the time to be the swing low, what is the entry that provides the least risk of reaching and exceeding the danger point? According to the SLA, it is the first retracement after the break of the supply line. However, this is a function of the bar interval. A retracement on the 1m chart may not show up on the 5m, and definitely won't be visible on the 15m.

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  #35 (permalink)
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DbPhoenix View Post
Taking these one at a time, first first, determine what constitutes a successful trade. If you go long, it is reasonable to define success as price moving in the desired direction rather than making a new low. Therefore, if the danger point is what appears at the time to be the swing low, what is the entry that provides the least risk of reaching and exceeding the danger point? According to the SLA, it is the first retracement after the break of the supply line. However, this is a function of the bar interval. A retracement on the 1m chart may not show up on the 5m, and definitely won't be visible on the 15m.

Ok Db following your line of thought I would try to make the scribble explanation in order to go step by step about what I am understanding.

Successful trade is define when the price do what is expected in the case for a long trade, confirms the RET as is shown in the image below.

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Failure trade is define (if long) when the traders show their unwillingness to make a HH and a LL is done

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Danger point. (RED line)

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That is right?

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  #36 (permalink)
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As far as it goes, but there needn't be only one DP. There is also one below the lowest swing low. Which you choose depends on (a) how much room you're willing to give the trade and (b) whether you prefer to stay in or exit and re-enter. If you prefer to exit and re-enter, then the higher DP is more appropriate.

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  #37 (permalink)
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DbPhoenix View Post
As far as it goes, but there needn't be only one DP. There is also one below the lowest swing low. Which you choose depends on (a) how much room you're willing to give the trade and (b) whether you prefer to stay in or exit and re-enter. If you prefer to exit and re-enter, then the higher DP is more appropriate.

Ok thanks, but regarding to the entry and the location of the Stop one could study the MAE of the winner trades in order to determinate a fix stop after the trade is triggered?, because in the other way the risk of the trade would be variable depending on the location of the DP.

Therefore the question is: would you recommend a fix stop at the beginning of the trade? or a variable stop depending where is located the DP (situation that could be transformed into a fix risk depending on the position size)?

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  #38 (permalink)
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lajx View Post
Ok thanks, but regarding to the entry and the location of the Stop one could study the MAE of the winner trades in order to determinate a fix stop after the trade is triggered?, because in the other way the risk of the trade would be variable depending on the location of the DP.

Therefore the question is: would you recommend a fix stop at the beginning of the trade? or a variable stop depending where is located the DP (situation that could be transformed into a fix risk depending on the position size)?

That will depend on the trigger. If you're going to use bars to define the trigger, then you're going to have to determine whether the trigger will be N ticks above the low of what at the time appears to be the trough of the retracement, or the trigger will be N ticks above the high of that bar, in which case you're going to have to determine whether or not you have the time to actually transmit the trade. Or is the trigger going to be at the confirmation of the retracement, when price exceeds the swing high that began the retracement? If so, by how much? A tick? Two? A point? Two?

When you enter a trade, it will either move in the desired direction or it won't. If it doesn't, it will either move sideways or it will move against you. If it moves against you but eventually moves in the desired direction, how far does it move against you before moving in the desired direction? If it moves against you and keeps going, what criteria are you going to use to determine whether or not the trade is a failure?

I know you want to reduce all this to statistics and that is an admirable goal. Few traders even bother. However, you may be looking through the wrong end of the telescope. The critical element here is not the stop but the entry. Consider focusing on which entries work and which don't. Then determine the characteristics of the successes and the failures. Only then are you in a position to concern yourself with stops. The purpose of the stop after all is to protect you from your own folly, not to force the market into assuming responsibility for the trade. This is why I encourage people to forget about their trades as soon as they've entered them and focus instead on what price is doing. If price is behaving as expected, then leave it alone. If it isn't, then exit the trade, regardless of where the stop is.

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  #39 (permalink)
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Question

@DbPhoenix.

Right now I am making some adjustments to my trading plan in order to start the Forward Testing process once again, but I have one question regarding to the applicability of the study that was made about the arithmetical integrity of a directional movement; more precisely your opinion about a trailing stop, taking as reference the more consolidated trend line in order to avoid get caught in a strong reversal movement

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lajx View Post
@DbPhoenix.

Right now I am making some adjustments to my trading plan in order to start the Forward Testing process once again, but I have one question regarding to the applicability of the study that was made about the arithmetical integrity of a directional movement; more precisely your opinion about a trailing stop, taking as reference the more consolidated trend line in order to avoid get caught in a strong reversal movement

What G has been doing with regard to the "arithmetical integrity of a directional movement" (I like that; sounds professional) has to do with determining whether or not the directional movement is exhibiting the signs of reversal (God, this all sounds so textbooky). It has nothing to do with stops per se, trailing or otherwise. IOW, if price breaks the SL/DL by more than N points, then one should exit and prepare to enter the anticipated reversal. If the anticipated reversal doesn't show up, then he has to prepare to re-enter an anticipated continuation, though if price breaks the line by that much, he is more likely looking at a range, or chop.

I know you want all this to be rigid and mechanical, and I wish I could help. But it just isn't. It's not as if you haven't gone through all the stages just like you're supposed to, but I can't help but wonder if during the observation phase you were subconsciously thinking about entries and exits rather than focusing on nothing more than gathering information on the whys and whats and wherefores of price movement. You wouldn't be the first by any means. But the fact that you're so concerned about stops, particularly trailing stops, suggests that you're more concerned about yourself than about what price is doing. Once the trader is entered, one should forget about it and focus on price. If instead he's concerning himself with stops, then he's focused on his trade and his P:L, not on price's behavior. This results in the usual emotional responses that the observation phase and the trading plan are supposed to ameliorate, if not eliminate.

Therefore, my opinion regarding a trailing stop is that the subject is irrelevant. If price is doing what you expect it to do, just leave it alone. If it isn't, then exit the trade. The work that G has been doing helps to define one's expectations regarding proper price behavior.

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