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THREE SET UPS
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THREE SET UPS

  #511 (permalink)
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Dragon View Post
Maybe off-topic, maybe not. As I continue to learn about trading in general, one thing is puzzling to me. I keep hearing traders say to follow your rules. But, how can a discretionary trader succeed over time without breaking his rules? Put another way, if I establish a set of rules that is profitable for me, shouldn't I be able to hire a programmer to automate them? It seems that a profitable ATS is hard to come by, thus, I am led to believe that profitable discretionary traders are always breaking their rules.

It depends if there are set rules or just flexible criteria. I don't have set rules where if this is above this I don't trade etc. I look at a variety of data (many would argue way too much) and then I decide if it's a high probability setup and if so I take it.

For example I use sine waves. I like to see two setups where two timeframes make cyclical turns together or the smaller timeframe breaks out in the direction of the higher timeframe. But I will trade against the higher timeframe if my other data is pointing to a high probability of a move in the other direction. I'm not breaking a rule. It's all just guidelines.

I personally don't believe it's possible to code up what I do with discretion. Even if it were, it'd be so complicated that testing it and fixing bugs and training it would take so long that market conditions would change and then it'd no longer be profitable. That's the key here: a discretionary trader can use discretion and adapt to changing market conditions. An ATS won't adapt. It'll just enter a drawdown and by the time the trader figures out that it's not coming out of the drawdown and pulls the plug it'll probably have loss money. That was my experience any way.

I've shown how I can achieve profit factors > 10 using discretion. I don't think an ATS can do that.

however all that isn't an argument against automation. For a simple setup if it's automatable then automate it. I traded a mechanical (but not automated) stock system for a long time. It was not optimal but since it required only a few seconds effort each day I traded it. I stopped btw when my discretionary trading started performing better than the stock system, it didn't make sense to continue it.

for the inside bar, I could automate it but I prefer not to. one reason is it's a lot of work programming, testing, fixing bugs, etc. I've done it before and it takes a long time. By the time someone succeeds in doing that it may not be profitable any more. For inside bar I feel it's not worth it. I get an audio alert, put in a bracket order and I'm done. I also like to trail my stop a bit and that requires discretion.

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  #512 (permalink)
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There are three dojis at the beginning of your chart - they suggest a trend change more often thant trend continue. Please tell if this is true?

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  #513 (permalink)
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The Automated systems traded in the street are very different from everything I could ever read on this site ......

Usually they require co-location at the exchange as speed is success factor Number 1

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  #514 (permalink)
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gabga100 View Post
The Automated systems traded in the street are very different from everything I could ever read on this site ......

Usually they require co-location at the exchange as speed is success factor Number 1

The World of High Frequency Trading ~ T3Live Blog: Daily Stock Market Trading Commentary

Do recognize that there is a big difference between HFT and automated systems. HFT systems need co-location as much they need their computers need power supply; they are essentially latency arbitrage systems working across different exchanges. The time-frame they trade in is very small.

Automated systems will typically trade in a much larger time-frame to HFT. It may stretch from a few seconds to minutes or even hours. You do not need co-location as much as an HFT. That being said, many automated system shops also co-locate since traders want to eliminate anything which can potentially take away their edge. Further co-location is not that expensive compared to the other costs associated with trading; it is taken as a cost of doing business, and hence becomes a big money spinner to the service providers.

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  #515 (permalink)
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""I am also interested in seeing whether Shodson's strat, when fully developed, becomes profitable. I think that the most important part of this Three Setups approach is to make sure to only take trades in the morning U.S. time and avoid the news (as Jeff says "Know when to trade"). If that part is successfully automated, then I wouldn't be surprised if that strat could be applied to a plain old zero-line cross on an Eco, SMI, CCI, or a MA crossover to achieve similar results that Jeff experienced""

Dragon - do you mean, the three setup results could be similar to either of these zero-line cross on an Eco, SMI, CCI, or a MA crossover or you meant combine both setups?

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  #516 (permalink)
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Eric j View Post
I commented early in this thread about the similarities between this approach and the DIBS method . Im familiar with this bunch thats trading DIBS and they mirror the results here in that they all have different results in the same markets at the same times but the disciplined traders have the best results overall . Disciplined traders.

Define "discipline"

If discipline = "the ability to strictly follow [your] rules" then a computer is the most disciplined trader there is.

If discipline = "following your rules but reacting according to the 10,000+ hours of screen time you've put in and how you feel about the way the market is moving" then a computer will fail because it doesn't feel markets.

I have tremendous respect for successful discretionary traders that can read a tape and a market, but I don't think they have hard and fast rules they stick to 100% of the time, they are mostly guidelines but they give themselves discretion to artfully go around them to ameliorate their psychological makeup and, hopefully, improve their success.

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  #517 (permalink)
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Emini,
I was just pointing out that maybe the money management, time of day, avoiding news, were probably more important aspects to these setups than IB or OB. From the looks of it, I am probably completely wrong about this.

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  #518 (permalink)
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Three consecutive dojis indicate a trading range. Al Brooks refers to them as (iii) setups. I would not say that a trading range indicates a trend change. You need to look at other criteria to find out what it stands for.

Let us assume that the (iii) setup occurs outside a Keltner Channel or Bollinger Band, that it follows an expansion bar with high volume (climax bar, stopping volume) and that one of the dojis is a churn bar. Then I would think that the odds favor a reversal. But even in this setup, you often will first have a false breakout (final flag of bull/bear trap), before price reverses.

If the (iii) setup occurs near the moving average, I would not see any reason that a trading range, which is nothing than a type of congestion, should resolve in a reversal. In the contrary, I would assume that trend continuation is more likely, if the market shows a clear trend in a higher timeframe.

In any case, you would want to wait for a breakout of that trading range, before entering a trade.


YulinYao View Post
There are three dojis at the beginning of your chart - they suggest a trend change more often thant trend continue. Please tell if this is true?


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  #519 (permalink)
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Just had lunch...

...so I thought I'd do some more "don't trade during lunch" backtesting, this time with CL-07. You can draw your own conclusions. I have what looks to be my favorite 24-tick target scenario highlighted in blue.

Attached Thumbnails
THREE SET UPS-cl-07-allday-lunch.png   THREE SET UPS-cl-07-allday-avoiding-lunch.png   THREE SET UPS-cl-07-before-lunch.png   THREE SET UPS-cl-07-during-lunch.png   THREE SET UPS-cl-07-after-lunch.png  
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  #520 (permalink)
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shodson
is the target and SL both 24? and we had 50 trades during lunch. is that for whole week?

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