11/27 - Didn't fade the gap. There was no gap as it opened on yesterday's close. I thought about going for extended target but since there was no gap I didn't think I had a statistical edge so I stayed out. However, it did quickly hit the extended target.
1/29 - Faded the gap, things seemed to be lined up well, odds were pretty good. Got stopped out for a 6.25pt loss. No system gives you 100% winners. I did everything right in terms of executing my plan and position management, it just didn't work out.
2/1 - MTG called to not fade the gap due to oversold conditions (less likely for up-gaps to fill) and first of the month is usually bad for fading up-gaps. Also, just as an FYI, the end of the month is bad for fading down gaps.
In the end, it didn't matter because I slept through my alarm and didn't get up early enough to fade the gap anyways.
After following MTG's chat room and watching the daily recap video I feel like I learned a lot today about gap fading. Here's what I learned.
1) If we have an up-gap higher than the low of two days prior, the gap is less likely to fill.
2) The first day and middle of the month are bad for fading up gaps. They tend to be up days due to market inflows. The last day of the month are bad for fading down gaps as we tend to get redemptions at the end of the month.
3) If a gap is unfilled all day the market will continue to trend away from gap fill in the last 30mins of the day. I've noticed this many times on a chart. This would be a great strategy to backtest.
4) Fading a gap where it has to cross through the daily pivot is more risky.
Last edited by shodson; February 1st, 2010 at 07:30 PM.
Reason: Added MTG daily video link
Took a day trade on something new I've been looking at. It's a volume spike range breakout strategy. I was eyeballing it yesterday on 15min and 5min charts, but I executed it on 1min charts today. It got within 1 tick of my target (2.5pts) then turned around for a loser. I thought about moving my stop to BE but held in for a full-fledged loser. Based on the analysis I did yesterday I think a 2.5pt target on a 1min chart is too large for these types of trades. I need to back test this some more before proceeding with this.
2/3 - While the market conditions were a little weak, other more positive factors led me to fade the gap this morning. I was targetting 2/3rds to gap fill and the other 1/3rd for the extended target, but when price approached the extended target (1100.00) I moved my stop to gap fill, which is where it turned around and stopped me out.
Just for kicks i put up an ES chart using a 4hr time frame (not a timeframe I usually look at on the ES). The chart already had a Bollinger Band and a triple EMA (TEMA) on it from some earlier studies. I noticed that I could see trades from the last few days on there. So then I widened it out so I could see all of the trades I had made in the last month or so. I started to look at the chart and analyze the winners and losers. Then I noticed that a lot of the losers seemed to be trading in the opposite position relative to it's TEMA. Then I started a spreadsheet to track which trades were winners and losers, the direction of the trade I took, and how much in agreement or not my entry was relative to the TEMA. I noticed that when I went long above the TEMA, success seemed better, but going long below the TEMA had more failures. The inverse for going short of course. But I noticed there were still some that were lined up correctly that still failed. So then I put up a momentum indicator, the RSqueeze in this case, and then tracked my success when going in the direction of the trend AND momentum.
The results were very astounding and eye-opening. See the attached screenshots. Granted, this is a very small sample size, but it only highlights what I've been taught but never really implemented very effectively yet. Also, being in alignment with momentum seemed more important than being aligned with price's position relative to the TEMA.
I've been reading High Probability Trading Strategies over the last week or so and perhaps the most important rule it teaches, which is the first chapter, is to trade in the direction of a higher time-frame momentum. So my results didn't surprise me, but looking back at my results with this in mind was very much an "a-ha" moment for me.
I've always "known" or been taught from others that you need to trade relative to a higher time-frame, but I wasn't always sure how to implement that. My concerns were always:
1) OK, how much higher must my higher time frame be, relative to my trade-entry time frame? 2x or 4x? Seems like most like 3x or 4x of your lower-level, trade-entry time frame.
2) How many time frames do I need? Some use 2, others 3 or maybe more. I'm still not sure about this, but 2 seems definitely better than 1.
3) Which indicators should I use for trend and momentum? The book I'm reading just uses a proprietary DTOsc indicator, which seems to be a mix of RSI and Stochastics. RSI, stochastics, MACD, just play with a few and see what works best for you.
For those of you that successfully trade multiple time frames, how would you respond to questions like these?
Last edited by shodson; February 3rd, 2010 at 12:25 PM.
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2/4 - Bad gap fade setups, stayed away. It was the right call as price widened the gap at the open for a big down move.
After yesterday's revelation about higher time frames I decided to try it out today. So I dusted off my pullback strategy and traded pullbacks in the direction of the higher time frame momentum. I got a short 2pt winner. I got two more short signals but didn't want to press my luck, but those turned out to be winners too. I'd like to back test this some more before I start putting too much confidence in this.
2/5 - Gap play was kind of interesting but still not compelling enough. So i stayed away. The gap did fill.
Brimming with confidence after yesterday I decided to trade some pullbacks, but the 60min momentum was up but the 4 hour momentum was down. Not knowing what to do and instead of just staying away, I just ignored them and just decided to trade any signal I got. Well, of course, things didn't go well. i got 2 straight losers and decided to not trade anymore. And, of course, the next 3 signals were winners. I really need to stop doing this until I solidify when are good conditions for pullback trades and follow it.
Shodson. Good work. Re yr question viz. multiple timeframes:
A down'n'dirty way to do it on a trading chart is to have the MA of choice (if you have MA) loaded 3* the usual length. i.e. if you are following 21 bar, also have 63 bar.
Re 60 min momentum being up, I disagree: the slope was up but was clearly 'in the red', i.e. upward corrective slope in downtrend. Good place to look for pullbacks if the LT momentum is down?
Of old the skilled first made themselves invincible to await the enemy's vincibility.
Invincibility lies in oneself. Vincibility lies in the enemy.
Thus the skilled can make themselves invincible.
They cannot cause the enemy's vincibility.
Thus it is said: 'Victory can be known; it cannot be made.'
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