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THREE SET UPS


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THREE SET UPS

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  #451 (permalink)
 Fat Tails 
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Hi cunparis and shodson,

if I am right you both took a similar trade and both with a loss. The inside bar - marked blue in the chart below - occured after an expansion bar up. The expansion bar was a climax bar that shifted value within the ongoing auction to a new level. On the 5 min chart you would have seen a climax bar followed by a churn bar.

The inside bar was a balancing bar that occured within the trading range defined by the expansion bar. So it was part of a countertrend move prior to the trendline break and you would expect a retest of the high, anyhow.

The problem with the setup is that the inside bar occured just above extremely strong cross-support on declining volume. Declining volume means a low probability that the countertrend continues and breaches the support line.

The support came from

- the intraday trendline
- the floor pivot R1 (75.51)
- a longer term strong fib confluence line (75.51)
- the 78.6% fib retracement line calculated from current day's high and low (75.53)

An inside bar on low volume just above strong support is not bearish at all. Of course it easier to see this with hindsight than in real-time. I just want to come back to the idea of Tony Crabel here, who introduced the concept of a breakout preference, which means that you only take the breakout in a defined direction.


cunparis View Post
Here's mine, +15 total (I put +13, that's after commissions).



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  #452 (permalink)
 cunparis 
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Fat Tails View Post
Hi cunparis and shodson,

An inside bar on low volume just above strong support is not bearish at all. Of course it easier to see this with hindsight than in real-time. I just want to come back to the idea of Tony Crabel here, who introduced the concept of a breakout preference, which means that you only take the breakout in a defined direction.

You have interesting observations and I do not doubt your analysis. But I'll give you my point of view which is very simple: I actively trade ES and it requires my full attention. It is my main source of income. This crude inside bar looked like an easy setup I could do without diverting my attention from ES. So that's why I trade it. I backtested the main idea and I'm trading it almost mechanically. I say almost because I try to trail the stop a bit more and sometimes move my target in which requires discretion (and even then I'm not sure the results are better than the mechanical version! hehe).

In order to act on your ideas I'd need to either:

- backtest them - this would require a time investment that I don't really have
- spend time investigating them and monitoring the trades more closely

so even if my approach, which is Jeff's basic approach, is sub-optimal, as long as it is positive I'm willing to accept the trade off. For me the crude trades are a bonus above & beyond what I get on ES.

I hope that makes sense. Normally I'd be very interested in your ideas and spend lots of time testing them but I have my own method for ES that is very profitable for me (you can read more about it in my journal thread).

I hope someone else will be interested in testing out your ideas for a bias for the IB breakout and will share the results.

Thanks

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  #453 (permalink)
 lolu 
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Today's trade on 3SETUPS.

Lolu

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  #454 (permalink)
 Fat Tails 
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Hi cunparis,

your comment makes sense. Did you backtest the profitability of trading inside bars, or are you just assuming it?


cunparis View Post
You have interesting observations and I do not doubt your analysis. But I'll give you my point of view which is very simple: I actively trade ES and it requires my full attention. It is my main source of income. This crude inside bar looked like an easy setup I could do without diverting my attention from ES. So that's why I trade it. I backtested the main idea and I'm trading it almost mechanically. I say almost because I try to trail the stop a bit more and sometimes move my target in which requires discretion (and even then I'm not sure the results are better than the mechanical version! hehe).

In order to act on your ideas I'd need to either:

- backtest them - this would require a time investment that I don't really have
- spend time investigating them and monitoring the trades more closely

so even if my approach, which is Jeff's basic approach, is sub-optimal, as long as it is positive I'm willing to accept the trade off. For me the crude trades are a bonus above & beyond what I get on ES.

I hope that makes sense. Normally I'd be very interested in your ideas and spend lots of time testing them but I have my own method for ES that is very profitable for me (you can read more about it in my journal thread).

I hope someone else will be interested in testing out your ideas for a bias for the IB breakout and will share the results.

Thanks


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  #455 (permalink)
 Zoethecus 
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Fat Tails View Post
Hi cunparis,

your comment makes sense. Did you backtest the profitability of trading inside bars, or are you just assuming it?

Has anyone backtested the inside bar setup?

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  #456 (permalink)
 aslan 
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shodson View Post
I lost 54 ticks on the 2nd trade, before the inventory reports. I have a 15 minute pre/post news window but the trade fired 20-25 minutes before the news. How much time in front of news do you avoid trading Jeff?

If you do open trades before a report or news, one key item is to tighten the stop before the report. Reports can whip quickly, and you do not want to take a big loss due to a whip or a new trend starting. Instead, tighten up, and you either take a small loss or if you are lucky a big winner if it goes in your original direction. Another option is to just close the trade before the report if you dont like the risk.

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  #457 (permalink)
 cunparis 
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Fat Tails View Post
Hi cunparis,

your comment makes sense. Did you backtest the profitability of trading inside bars, or are you just assuming it?

I did extensive backtesting and posted my results including the optimizations and the equity curves in this thread. You may want to read over my previous posts.

I am not a fan of backtesting because I use a lot of discretion. But this is a really simple setup so I thought backtesting would give me more confidence to trade it. I'm sure results can be improved with discretion but I simply don't have the time to invest right now.

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  #458 (permalink)
 cunparis 
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aslan View Post
If you do open trades before a report or news, one key item is to tighten the stop before the report. Reports can whip quickly, and you do not want to take a big loss due to a whip or a new trend starting. Instead, tighten up, and you either take a small loss or if you are lucky a big winner if it goes in your original direction. Another option is to just close the trade before the report if you dont like the risk.

I agree with one caveat. No matter which direction it will go, it often will whip both ways taking out any stops before it goes on the big move.

In the past I've practiced bracketing the inventory report. It's a lot of fun but I haven't been consistent enough to do it with real money. Here's an example:


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  #459 (permalink)
 aslan 
Madison, WI
 
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cunparis View Post
I agree with one caveat. No matter which direction it will go, it often will whip both ways taking out any stops before it goes on the big move.

Totally agree, usually the first whip is in the wrong direction to the eventual trend. Personally, I would avoid CL reports altogether unless you really know what you are doing.

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  #460 (permalink)
 cunparis 
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I just calculated the PF for all my crude trades. This does not include my first trade which was an incorrectly identified reversal bar which lost me $380. This is just the inside bars.



1.98 is fantastic for such a simple setup! This is from June 23 and I know I missed at least 1 setup that won.

I then compare to my ES trading during the same period (NOT the inside bar setup, this is my normal trading based on cycles & volume):



The 1 ES loss was a mistake, I put on a trade right before a news release and stopped out. But even with the mistake the PF is 10.18. This is why my focus is on ES but the crude setup is a nice bonus.

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