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THREE SET UPS
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Created: by Jeff Castille Attachments:243

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THREE SET UPS

  #721 (permalink)
Elite Member
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Using inside bars as exits

If I travel by underground I am only entering and exiting, when the train stops. This explains that I am still alive. Some people ride the trains on the outside to show off, but even when I was younger, I did not do that, because I would not fit between the two trains....

The idea is to use low volatility setups as entries and exits as well.

I use the following as low volatiliy setups:

- IB4 (inside bar, narrow range 4)
- IB7 (inside bar, narrow range 7, subset of above)
- NR7 (narrow range 7, which is not an inside bar)
- II (in honour of Al Brooks, two consecutive dojis)

I always have a breakout preference, so I only take breakouts in my preferred direction, otherwise I do not take the trade. I have an idea, where price should go, based on trend filter, channels and volume. If the idea is confirmed by price action, then I take the breakout trade.

Now, if these low volatility zones can be used as entries, you can also use them as exits. Saves you some money, if you adjust the stop to just 2 or 3 ticks below (long position) or above (short position) the inside bar, narrow range bar or trading range created by the dojis.

Why would you want to exit the underground when it is at full speed?

The chart below shows that I would have saved some money, if I had exited the position just below the inside bar (orange diamond).

Exiting like this requires a reentry strategy in case that the "breakout", which triggered your exit, was just a trap. In this case it was n no trap but I should have taken my profits and run away.....

Attached Thumbnails
THREE SET UPS-tf-09-10-5-min-28_07_2010.jpg  

Last edited by Fat Tails; July 28th, 2010 at 12:35 PM.
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  #722 (permalink)
Trade with the flow
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I got my butt handed to me with the IB trade today. What a bummer.

Earlier I said discretion can be good or bad. I was trading ES at the moment and I really thought crude was going to break lower so I did the dreaded - I moved my stop and gave it more room. My stop, determined by my automated strategy optimization over the past 3 years, is 31 ticks. So instead of $620 loss I ended up with $860. I don't think I'll do that again.

Fortunately I did very well in the European morning and I'm roughly breakeven for the day (the earlier trades are in Euros which ninja doesn't convert to dollars). Hopefully I can get a winner on ES in the last hour to keep my winning streak going..

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In hindsight there were warning signs. ES has been in a trading range most of today, just bouncing back & forth between 05 & 07. I went long @ 05 3 times now for a small 3-4 tick scalp.. So it was not unreasonable that crude would not be trending..

PS: That first IB trade was a mistake. I accidentally clicked on the DOM, I think it was a windows refresh problem I had clicked and the DOM just suddenly appeared making me short 2 contracts. I watched in horror as it went -10 against me (that's -$200!). I put targets at +1 & +2 and got taken out for a small profit. This is why I often keep my DOMs on sim in between trades. I'm clumsy with the mouse..

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  #723 (permalink)
Sharpening mental edge
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I really dont get it sometimes...

What is the deal! Life doesnt have to be hard!

Looking over this thread and since the initial idea was put forward most of the rest of the thread is spent trying to overcomplicate what started out as a simple entry technique.

Take it for what it is guys

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  #724 (permalink)
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You are 100% right about the simple entry technique.
BUT, to look for 8 ticks profit and have around 25 tick for SL is a VERY VERY bad MM in my opinion.
Maybe that why so many posts for this simple entry system. Looking for the holy grail by adding more indicators and ruls to overcome the bad P/L ratio.

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  #725 (permalink)
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ikew View Post
You are 100% right about the simple entry technique.
BUT, to look for 8 ticks profit and have around 25 tick for SL is a VERY VERY bad MM in my opinion.
Maybe that why so many posts for this simple entry system. Looking for the holy grail by adding more indicators and ruls to overcome the bad P/L ratio.

Perhaps you could share your recommendations?

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  #726 (permalink)
Trade with the flow
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ikew View Post
Looking for the holy grail by adding more indicators and ruls to overcome the bad P/L ratio.

What is "P/L ratio"? What's the criteria for good or bad?

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  #727 (permalink)
Sharpening mental edge
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Very true but expectancy is a function of r:r AND hit rate % as has been said many times by Mike and others before. Adding indicators is categorically and fundamentally the incorrect way to go about improving either of those.

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  #728 (permalink)
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Going somewhat off topic, but...

... just today I read something Ed Seykota had to say recently about expectancy :


Quoting 
Expectancy of a trading system is a relatively new concept; it is the mean of all the R-multiples in a series of trades, where R-multiples are the profit/entry_risk ratios for the individual trades.

I hold that the term "expectancy" conjures up notions of the future and of predictability, both of which seem somewhat counter-productive to sticking to trend-following systems.

I have no mention or use of expectancy in my paper.

I notice many traders experience and express confusion about the expectancy concept. I gather it is mostly useful as a traffic-building gimmick for its author.


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  #729 (permalink)
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rassi View Post
I really dont get it sometimes...

What is the deal! Life doesnt have to be hard!

Looking over this thread and since the initial idea was put forward most of the rest of the thread is spent trying to overcomplicate what started out as a simple entry technique.

Take it for what it is guys

.. or check out the backtests, decide to include a dash of one's own experience and discretion and maybe, just maybe, you can end up with something that you can acutally trade, ie. with an acceptably smooth equity curve. I would agree that successful trading is simple, but certainly not easy : Jeff is giving a great example here.

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  #730 (permalink)
Sharpening mental edge
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So your telling me that you don't care about risk : reward or your win rate! The whole point of back testing is to work these things out as jeff has done.

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