In order to avoid burying my journal under charts I have decided to open another journal to test and track certain aspects of observation that have been made over the last couple of months, the idea is to see how these ideas stack up and if they can be consistently replicated on a daily/weekly basis.
To start off with the market is in two states, it is either trending or ranging and this knowledge is important as the plan depends on being able to identify which is which, what is happening and how to take advantage of it. And yes, there are ranges with in trends and trends within ranges, but, the focus prior to placing any trades is to identify what the most immediate state of the market is.
As part of the preparation, one needs to have a general idea of what is happening, the weekly and daily might give a bias to price direction, what I mean by that is, if for example price has reached the upper extreme of the weekly/daily channel its most likely move is away from that extreme to the mean and onwards to the opposing extreme.
If the higher time frames are pointing down it would come as no surprise if a breakout to the upside of a 1 minute range fails to get anywhere and results in a losing trade. Even with this knowledge one has decide their own risk tolerance and understanding of the PA.
The little 1 minute range that a trader is trading might be a part of a larger range, when price breaks out and trends, context can give one a heads up as to where that trend could be reversed, larger swing points can impede progress as they mark a point that price could not get beyond, a point where one behaviour ended and another took over, just because price gets back there does not mean the reason has gone away, but, again the focus is the behaviour at that level.
The barebones of the plan is to start off with finding the most immediate range, locating the extremes of said range and waiting for price to get to those extremes. Once there, there are two possibilities, if price reverses at the extremes short the upper limit and buy the lower limit (ranges <10 points will be left for breakouts). If however price breaks out, it shall be traded as a breakout into a trend.
The theory with ranges goes that once it has tagged one extreme it will most likely head to the other, with that in mind I will keep an eye on respective swing points and the mean, an exit is not based solely on price reaching the opposing extreme it is more on the behaviour. If price breaks out one is already positioned for it so pay attention to what price does there.
With a breakout, do not panic over a retrace after the BO, its normal, once the continuation is confirmed track it with a DL/SL. This is where context/(AMT) can give a target and the SLA manages the trade, the line will get broken occasionally but some breaks mean more than others. I collected stats on most likely outcomes with a note of discretion that explains my thinking, https://futures.io/trading-journals/27702-gozilla-s-rough-road-consistency-6.html#post501426
It is okay to scratch a trade that is not doing what is expected, and if what is happening makes no sense sit out and take notes.
This is barebones and basic, after all it is just a test. I will look to cover 200 trades, once this task is completed the next step will be replay then sim, I have been taking my time with this process as I all to often rush back in then get disappointed when the results fail to follow.
Last edited by Gozilla; July 9th, 2015 at 10:57 AM.
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The plan will be to take one off once the the initial push has completed and let the other run, for a breakout the first lot comes off after 11.5 point move, for the trend break reversal a 7 point move shall be used, this covers the leg as a whole not from the entry of the trade.
Once that initial push tags the respective number the rest could be moved to BE, a runner strategy can go some way into building confidence in the plan by taking some of the heat off with realised profit, the numbers I use may change as I accumulate more stats.
Range trade criteria
Once the range limits have been identified and the range is greater than 10 points, reversal trades off the extreme can be taken, short any sign of rejection from the upper extreme, buy any rejection from the lower extreme. No confirmation necessary as by the time one gets confirmation price could be well on its way to the other extreme.
Entry should be taken within a point of the limit, and the theory is, if it rejects one extreme it will most likely head for the opposing extreme, track swing points and watch behaviour at the mean.
Do not exit at extreme unless behaviour suggests a reversal is likely, one is already positioned for a breakout trade, limit + behaviour = exit.
I will not be trading reversals on ranges of less than 10 points only the breakouts.
I will use a 10 point daily stop rule ($400) if this limit gets hit during the day no more trades.
I will be moving in a bar by bar basis.
I will be following behaviour and context so will most likely be blind to news related movements, (FOMC, etc).
There is a chance I will recognise days either from the pre-market or the opening 30 minutes, I will try to stick to rules and explain the reasoning on chart, but, I may elect to scrub it and omit it from stats.
I'm most likely missing something out, I will try to keep it short and sweet with explanations on chart.
Last edited by Gozilla; July 10th, 2015 at 10:17 AM.
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Having spent the last two and a half weeks thinking about the backtest phase I have come to the conclusion that the two strategies are too similar to one another. They share the same entries, stops, and to a large extent management, with the runner strategy taking one lot off at the MFE leg of the entry criteria.
With the management and exits being the same it is a given that the AIAO will come out ahead of the runner strat as it will simply accumulate more points with 2 lots when price moves beyond the MFE target of the first exit of the runner strat (Stops after the first exit might be initiated prior to price making it back to BE depending on behaviour). Due to this line of thinking I will tweak the management slightly between the two strategies.
Both strategies will continue to share entries and initial stop, but the runner will be more reliant on the numbers that were mentioned earlier in this thread and my journal.
Runner strat will take one off on the MFE leg with a full exit on either a range extreme reversal or a break of stride by >3 points. The emphasis on exits in this strategy is range reversals and DL/SL breaks.
AIAO strat will play ranges the same as above, but, when it comes to the management it will be heavier on AMT and swing point breaks for exits, the stride can get broken repeatedly but if the trend is intact why exit the trade if there is no obvious reason to do so.
Multiple breaks do point to a change in behaviour, and I will use different tactical sets depending on what I see in terms of price behaviour (DT, DB, climactic behaviour, hinges etc) that may trigger exits ahead of swing point breaks or AMT targets, but I will try to describe the reasoning behind my decisions in my charts.
The former strat has a "safer feel" about it, booking profits early and exiting at the first signs of change, whilst I believe it is profitable it is limited by getting one out of a trade at the first bump which is to be expected. The latter strategy, which I feel is a truer reflection of where I am, might be more testing to the damaged trader, but has greater flexibility when it comes to trending days provided one can stay focused and disciplined when it comes to the management of the trade as it unfolds.
I will hopefully make a more detailed update to the rules between the two strategies over the next day or so.
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