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HumbleTrader's next chapter

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  #11 (permalink)
 Narcissus 
Legendary , Always learning
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Stats Porn

Over the last 20 years, i.e approx 5000 trading days, an odd anomaly takes place approx 20% of the times. Looking at candlestick daily chart may help to understand this better.

RTH Closing price is higher than Open yet it's still below Y-Close price. (e.g Yesterday). Reverse is also true.

Stats favour continuation of the original move. i.e Bearish tomorrow. Though the win rate is close to 50%, the profit factor is almost double for shorts.

I try to have a behavioural explanation for the statistics and not just take the numbers at its face value. For this situation, my interpretation is that Bulls won intra-day but only barely. Hence Bears still rule multi-day swing. So original trend is likely to continue.

I'm very mindful that if it doesn't work out tomorrow, it doesn't invalidate this theory. In fact, the same signal failed 5 days ago. However, we have additional bearish factors today i.e Opex. Hence slightly higher odds. However, May Opex had been bullish which lowers the odds a bit. It's getting interesting now!

These are the 3 core aspects of trading business.

1. Finding out the odds/probability - from past events
2. Reading the present market price action (via EMA & Volume)
3. Expectation of future behavior of market participants aka. price targets (via Support & Resistance).

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  #12 (permalink)
 Narcissus 
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Short trade working out well so far. Also managed to scale in at HOD and scaled out at Y close.

Price testing Y low now. Some regret for not being too aggressive and scale in again but my desired bounce to vwap didn't happen. Low volume made me skeptical of the down move initially, but its picking up now.

Holding this short till EOD. May scale in if we end with up with a decent bounce to Y-C. Not chasing it. Happy weekend

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  #13 (permalink)
 Narcissus 
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Bit puzzled by this very low volume affair with YM micro on a such an important Opex date and also the significant move of testing swing low. And the psychological 31000 mark. Strange. Need to research on this over the weekend.

I'm used to low volume creep up days. Not seen many down days, inching lower on low volume. Possibly a bear market behavior which I have very little experience of. Will look into this.

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  #14 (permalink)
 Narcissus 
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May 20 Friday Analysis

Executed my plan reasonably well.

Initial short YM (50 DIA ETF instead of YM micro for many practical reasons - same dollar value though).

Scaled in another 50 within few minutes, much sooner than anticipated as the opening downswing was strong and easily negotiated vwap.

Scaled out at the location I said I would i.e Y-Close.

I wanted to short again and scale out at Y-L as per my plan. However, the bounce to vwap didn't happen. Hence risk reward was not favourable for scale in, especially with low volume.

I didn't expect another trend day & hence somewhat risk averse with scale ins but we had another monster downmove. It was tempting to close my position at 100% ATR and go flat. However, I wanted to stick to the rules even at the risk of nice paper profits evaporating. That's exactly what happened but I have very little regrets for that. I am actually more pissed off about not scaling in earlier and risk more. Overall green day. Happy with the lessons too.

The shift in mindset is pretty striking actually. From very risk averse + quickly banking profits for many years to risk seeking, particularly when the trading day is unfolding as per my probability expectation. I am also letting my winners stay longer even if means less profits. I will formulate the scale out and exit targets based on ATR & key levels after trying this trading style/system for 30 days.

Weekend summary & reflection to follow.


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  #15 (permalink)
 Narcissus 
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Attachment 324580Week ending May 20 2022




Decent start for my new chapter in trading.

Aim is to have 30 trading days with rigid entry/exit rules - to test the trading system and flexible scaling in/out strategy for profit maximization ideas.

I will entry the market @ open every day and stay till the very end. The main question is position sizing . Currently I am entering 1/3 for weak signals and 1/2 for strong signals. This will likely change in the next week or 2. I may go all in @ open itself and double down on trend days (which is lot more likely in this bear environment). I may also bank more if 100% ATR is reached intraday.

It's not a gut feeling trading anymore. I will try to guide up my action with stats or odds.

For eg. Trend down days happened approximately 200 times out of the last 5000 trading days. However, 30% of the them happened in a strong bear market environment like this (price below 10/200 EMA) which accounts for only 10% of the trading days. In other words, Trend down days are 3 times more likely now compared to other market environments. Why not double down when I see trending signs like high volume, shallow countermoves and strong delta?

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  #16 (permalink)
 Narcissus 
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This is my YM trading report for the last 6 months. I tried it for 4 months in 2021 and the equity curve was pretty steady until I interfered with overnight holdings (obviously I kept the losers). That resulted in a big loss and subsequently another unplanned multiday trade which was a big win and overall it cancelled out my 1st mistake. Though the psychological toll was noticeable, I realized that something was changing inside me. Trading was becoming easier, less emotional and probabilistic thinking became natural to me. I was no longer entering and exiting at extremely unfavourable locations!

For the first time, I realized that full time trading is a reality for me.

Then I took 2 months pause from trading in 2022 due to work reasons but kept checking the odds of my method mentally. I have decided to try it again now for 6 weeks. This time it's with rigid exit rules and no overnight holds.


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  #17 (permalink)
 Narcissus 
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I use the word system or method very loosely here. There is no buy or sell signal from my analysis. Only Odds. That too, a pretty boring one. 'the likelihood of the next day closing high vs low'.

I tried manually importing past market data and used excel to backtest. FT71 has some helpful videos about this. Since I don't have a technical background, I was looking for readymade solutions and found investiquant. They are very expensive, didn't have much positive reviews here or elsewhere. It's not very popular either, judging by their YouTube viewcount but it served a purpose for me. Data crunching for dummies. It's more like a backtesting system for me. I forward test it with my trade!

Initially I wasn't impressed but curious to compare that against my discretionary active day-trading without any clear entry or exit rules. (I take 5 to 10 micro YM trades a day on average). I decided to test their odds with DIA ETF (all in @ open and all out @ close) against my YM micro active trading, last summer. I was intrigued and somewhat impressed. The P&L was posted above. However, it could have been very well due to the rigid rules of entry/exit and money management rather than the odds. I also didn't like the fact that there was no stop loss and it gave a lot of mixed and confusing info. Without technical background, I couldn't even verify whether it's accurate or not.

Despite all the drawbacks, I liked it because of it's probabilistic based approach and also the fact that I do my work BEFORE market opening. Though I enjoy price action and volume analysis, I admit that it's a tiring to stare @ the screen for up/down candle with 4 to 5 indicators for few hours. Not to mention the emotional ups and downs whilst having positions.

I currently spend at least 3 to 4 hours a day in my laptop researching the markets, but only an hour or so after the market is open. The cognitive and emotional intensity during RTH is also very low. It's the complete opposite of my idea of day-trading when I first tried it more than 7 years ago.

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  #18 (permalink)
 Narcissus 
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This is an example from my homework.

Few posts ago, I made a comment about Thursday closing lower, yet RTH closing price was higher than opening price.

I wanted to see how often that happens and what follows after that. After all the boring number crunching, I change that into an excel chart with colour as I am very visual. 5 signals. Strong Bull, weak Bull, Neutral, Weak Bear and Strong Bear. Colour coded accordingly.

Then I look at RTH open location and see whether that pattern is still present. e.g Gap Up vs Gap down. What about opening above Y-H vs below Y-L. I will come up something like this after few hours.



(-U is Negative day but UP intraday close. e.g This week thursday)

Then the possibility of Gap UP vs Gap down. I noticed stronger bearish signal with Gapdowns but even with gap-ups which we had yesterday, it was still a weak bearish signal. That's step 1.

Then I look at 1 or 2 more characters of Friday. e.g Option closing day and check those odds. Finally seasonal odds. Friday after a doji candle in a Bear market.

If all those odds align, then we have a high probability signal. This is how I prepare the odds and choose the side i.e Long Vs Short pre-market.

For the sake of transparency, I am outlining my prep here. Not to sell anything or impress anyone. I don't know whether this will work or not but I like the probabilistic thinking that comes with this. If you have any questions, pleas hold on to them for another 3 weeks. If my trade execution and P&L improves , then we can start exploring more into this avenue.

Then the second aspect of my trading is execution with scaling size which will be documented on a daily basis.

Finally, I will also outline my entry points and exits pre-market but this one is more dynamic and hence may go through considerable change over the next few weeks.

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 Narcissus 
Legendary , Always learning
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One of of my assumptions about Price action is being smashed today.

I wanted to find out what happens after a candlestick day like Friday.

Red Candle with long buying tail.

My learning from books and YouTube videos reminded that buying tails, especially at swing lows are bullish. Good area to go long with stop loss below the low of the tail.

I wanted to test this assumption today.

1. Red Candle with a tail of >50% of daily range happened >400 times in the last 20 years.

Result - Bearish. Profit factor 0.83 if you go long the following day.

2. When I selected only the days with high ATR like Friday, then the profit factor goes down even further to 0.7. Sample size is pretty decent at 170+days.

3. Finally, when I added bearish market condition like the one we have now, it's even worse at 0.58.

Win ratio is neutral around 50%.

My Interpretation - Prices could go up or down without any preference in direction but when it goes down, it moves down twice the amount. Hence it's lot more profitable to short buying tails.

I didn't believe. Perhaps, if it's a bullish close on Friday, long on Monday may be profitable. I checked that one too. 5 times more numbers which is good but yet the same results. Bearish.

hmmm. interesting.

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  #20 (permalink)
 Narcissus 
Legendary , Always learning
Vancouver Canada
 
Experience: Intermediate
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Posts: 1,273 since Nov 2014
Thanks: 2,486 given, 1,807 received


Traveling today to an internet poor area. Hence 1/2 size or no trading.

Stats are a bit mixed. Gap up is mildly bullish especially above Y-H. If opens below Y-H, it's mild bearish.

Tentative plan is 1/4 position based on location. If it chops around without volume, inside Yesterday's range, may not scale in.



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