Registered: Mar 2003
08-10-12 04:53 AM
Hi Seb, it's a collection of very simple price action and time constraints. Many I learned from years of screen watching and discretionary trading. Others come from remarks my elementary-school aged kid made after looking at a chart. What I didn't realize is once they're all rolled together, they make quite a formidable trading machine.
Here's one example. At one time I was trading breakouts on the YM (mini-DOW futures). It was profitable, but I noticed a certain recurring event that would always result in the maximum loss for the trade. This was the old "false breakout" when I'd get just one or two ticks triggering my stop entry, followed by a fast, aggressive move in the opposite direction, right into my stop exit. Maximum loss with no time to react. Why not go with a market entry once a breakout is confirmed? Well, for me personally (too emotional), I'd lose less money by lighting a wad of cash on fire each day and walking away.
So.. here's how the breakout entry code works. First, there's the breakout price. Once we hit the breakout price, the clock starts. We look to see if price retraces a certain amount to the "cancel" price. Once the clock finishes, if we didn't hit the "cancel" price, we put in a limit order entry. The limit order price is independent of the other two prices (breakout and cancel). The total clock time is another parameter. By playing with the parameters, I've been able to shape all kinds of different breakout entries/behaviors. I do an enjoyable exercise where I look at the chart from the day's trading and see how parameter tweaks may have changed the results for the better. I look at the price action and see if there's anything out there to capture.
I guess we'll know a few months from now if it all works.