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HumbleTrader's next chapter

  #131 (permalink)
 
HumbleTrader's Avatar
 HumbleTrader 
Vancouver Canada
Legendary , Always learning
 
Experience: Intermediate
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June 24 update 2

Still flat and price holding in the 3880s.

I was considering buying 60s, above vwap but may call it a day and have an early weekend.

Meanwhile, I have an interesting experiment idea.

This price action today has a higher probability of bearish follow up on Monday, according to stats. I can test that hypothesis by going short now and holding over the weekend. I am trying drills to get comfortable with overnight holds, but with only 1 MES.

Since the day is still bullish, I don't want to go short yet. I expect a quick flush to test 3900 and placing a limit order @ 3902. Risk reward is better with that level rather than shorting 80s. Let's see how friday PM plays out.

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  #132 (permalink)
 
HumbleTrader's Avatar
 HumbleTrader 
Vancouver Canada
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Experience: Intermediate
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June 24 2022 Review

Long bias executed well but not aggressively (i.e no scale in or re-entry).

1/2 size @ RTH open and scale out within an hour. After that there were limited opportunities and hence early weekend for me.





(I'm holding MES short over the weekend as part of my next drill - overnight holds based on stats of gap up/down)

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  #133 (permalink)
 
HumbleTrader's Avatar
 HumbleTrader 
Vancouver Canada
Legendary , Always learning
 
Experience: Intermediate
Platform: Investor RT
Broker: IB & IQ DTN
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The Bull market resumes

My equity curve had a pullback last week and we are seeing an impulse move now.

Odds worked in my favor this week. Though my scale in/out was somewhat conservative this week, overall quite happy with the results. I'm particularly pleased with my profit factor (my goal is 2+). I'm ok with win ratio around 50% and currently, due to luck, it's better than 60%. My conviction in the system/edge grows exponentially.

I'm tentatively figuring out how best to use the stats for swing trading. Trying overnight hold this month, with some discomfort.



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  #134 (permalink)
 
HumbleTrader's Avatar
 HumbleTrader 
Vancouver Canada
Legendary , Always learning
 
Experience: Intermediate
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Smart vs Stupid decision

I learnt something very powerful, yet very obvious, from the book 'Thinking in Bets'.

When we think about our stupid decisions in the past, usually we think of bad events or undesirable outcomes. And assume (mistakenly) that the decisions that led to those outcomes are stupid/unwise. Several psychological terms to explain this but I prefer hindsight bias.

I'm trying to loosen up this connection between my trading decisions and outcome.

Example:

I'm currently short MES. Entered late Friday PM above 3900. (Well thought out plan and executed as per my earlier journal entry). This decision is based on 3 stats from the last 20 years of data.

1) When ES closed up more than 2%, it gapped down the following day on 82 days vs gap up 56 days.

2) When ES had unfilled gaps, it's more likely to gap down the following day (100 vs 75).

3) Mondays in bear market is likely to gap down after a higher close on Friday. (55 vs 45).

-----

If we gap up 100 points on Monday, is my decision, to short ES friday PM, a stupid one?

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  #135 (permalink)
 
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 glennts 
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Following your methodology is only stupid if you have a stupid methodology.

It's how you figure out what works and does not work.

I'd be interested in your thoughts on how do you decide a > 50% statistical outcome becomes a high probability trade and not just a coin toss.

Also, because I don't have the number crunching experience, because a 2% move from 15 yrs ago is not the same point value as the same percentage move today, why would a market response from back then be a useful model in today's markets? I don't have the opinion that it wouldn't be but am curious to hear why it would be.

"If you don't want random outcomes, don't make random decisions."
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  #136 (permalink)
 
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 HumbleTrader 
Vancouver Canada
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glennts View Post
I'd be interested in your thoughts on how do you decide a > 50% statistical outcome becomes a high probability trade and not just a coin toss.

It's a high probability trade based on a large data set of 5000 trading days over 20 years. Gap down probability for Monday is around 65% but I agree that the next event has 50% statistical outcome. It's similar to a coin toss where the coin is unevenly weighted to favor Heads 65% of the times. Yet, the VERY next toss is still 50/50 for heads.


glennts View Post
Also, because I don't have the number crunching experience, because a 2% move from 15 yrs ago is not the same point value as the same percentage move today, why would a market response from back then be a useful model in today's markets?

I don't have tech/math background either. (I'm a mental health professional actually) I try to interpret stats/numbers as repetitive crowd behaviour (based on collective heuristics).

My assumption is that 2% move is a significant move, regardless of the period it happend. i.e today or 15 years ago. Hence, I expect the crowd to behave in somewhat predictable manner and looking for patterns (if present). In this case, the pattern I found was 'gap down open more likely the following day'. Obviously I can only speculate. Perhaps 2% is a big enough 'short squeeze' to shake off weak bears, so market can resume it's original downtrend. Or, it may be related to the behavior of long term investors' order placements over the weekend, after a big Up friday, in bear market. I have no idea.

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  #137 (permalink)
 
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 glennts 
Corpus Christi, TX / Westcliffe, CO
 
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Thank you for the explanation.


Narcissus View Post
It's a high probability trade based on a large data set of 5000 trading days over 20 years. Gap down probability for Monday is around 65% but I agree that the next event has 50% statistical outcome. It's similar to a coin toss where the coin is unevenly weighted to favor Heads 65% of the times. Yet, the VERY next toss is still 50/50 for heads.

When you considered Monday I can see how summing the percentages of your 3 reasons would lead you to the conclusion. #3 seems to be the lowest probability but the more interesting one. It's not unusual for there to be a gap over the weekend in Globex session trading so the question is ( as it always is ) up or down.

I'm not an odds player but if I were my inclination would be to diversify the bets over many patterns that seem significant in recognition of the 50/50 chance that this single event will be a 65%'er. Given that you can have a long run against the odds, how long are you prepared to stick it out?


Quoting 
I try to interpret stats/numbers as repetitive crowd behaviour (based on collective heuristics)....
...Perhaps 2% is a big enough 'short squeeze' to shake off weak bears, so market can resume it's original downtrend. Or, it may be related to the behavior of long term investors' order placements over the weekend, after a big Up Friday, in bear market

This is an interesting subject. My assumption has been that given the wide disparity of participants, 1 lot fingers crossed bets to large block institutional market movers, each with different justifications for their actions, it is not possible to make assumptions about "the crowd" and getting in front of an anticipated result opens the door to confirmation bias on my part. What price does is an accurate expression of the crowds net intention and for that reason I try to refrain from speculating on the collective mindset.

But if you have the odds in your favor then speculating about the reasons why is really not necessary.

Good luck with Monday.

"If you don't want random outcomes, don't make random decisions."
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  #138 (permalink)
 
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 HumbleTrader 
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glennts View Post
But if you have the odds in your favor then speculating about the reasons why is really not necessary.

I agree. I focus mostly on the odds. Reasoning is just a comfort blanket.

Thanks for your thoughtful comments.

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  #139 (permalink)
 
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 HumbleTrader 
Vancouver Canada
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The best teacher I had in trading so far is ...

Adam H Grimes.

He has so much free stuff in his website marketlife.com and some amazing insights in his blog.

I briefly mentioned in @Salao journal about the challenges retail traders face and the advantages of prop firms. Adam articulated these concepts of multiple roles we play quite well in his post 'many hats'. He also gives useful tips to simulate the prop environment for success. Thoroughly enjoyed his blog.

https://adamhgrimes.com/many-hats/

P.S. His YouTube videos are also good but he LOVES talking and hence I prefer his concise blog posts

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 GFIs1 
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Number crunching, odds and patterns

If you look at your 'stats' and you decide on how to manage the next trade you are still in the clouds. Means flight on instruments. As you never can trust the stats.

In fact I am using stats to SEE patterns of behavior in the markets. This tracked down to weekday, IB and time - including all the imponderables of numbers, speeches etc. gives a perfect basis to TAKE a trade or to OMIT it.
Best of it - I can see the start and the end of a trade as the pattern gives me a result on a given day / time / chance - and proposes the direction of the trade as well.
Maybe this is a bit out of the box - but with some training one can find the high probable gains aka KNOW thy MARKET!
Of course we need to have a predictive market with stable volume.
Thus said - July and August (low volumes) are not good for this approach.

GFIs1

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