For a long time I tried to daytrade successfully by using buy stops to obtain price confirmation or short stops when wanting to short and didnt accomplish positive expectancy. Based on things I read it seems that those suggesting it only used examples in hindsight, in reality many times I found myself buying the top or shorting the low of a swing. On the other hand, I've begun buying red, when something is rangy or uptrending and shorting green when it's doing the opposite, with quite good results. In fact I have prohibited myself from buying green candles. Mostly tips I received via PMs from members willing to lend a hand, sadly, can no longer find them in ET, so searching for more help from current ones. I remember that for the longest time I would get bullish when something went up fast, and always ended with a loser in my hand, I said, this is strength, trend is up, then got slammed. Well after losing money doing this I decided it was time to stop and started looking for different strategies. Now when I see that feeling I fade it, never adding to decrease my average position, only to improve it, but respecting the trend at hand. I think adding to a winning position is horrible, only works when you are in a very strong move, if i had known from the start it would be strong I would go all in from the beginning, but you never know that, most of the time everything is wavery and reversive. I wonder if I'm on the right track here, and if there's anyone else doing something similar, I would love to keep improving this from a short term perspective which is where I tend to need more help. Thanks for any insights, trying to get a discussion going if you are interested.
If you're buying when everyone's selling and selling when everyone's buying your strategy would do well. Also, from a trading system developers perspective any cursory backtest of the breakouts you were looking for would have revealed that it had a negative edge and no advantage entry wise in nearly every case. Run some backtests the next time before you listen to people in hindisight. <b><i><u> The first sentence is the only way to make money.</b></i></u>
If you are trying this in es it will rarely work due to chasing price in a mean reversion instrument. You have to buy when everyone is selling and vice versa. If you can't get past the emotional issue of fading the herd then you must learn to semi automate your strategy. Never chase price in ES if you want to be successful long term.
Buying breakouts is a low percentage play, except maybe in extreme bull markets. At the same time, it is easy as a daytrader to fall into the trap of fading everything, which can also be a problem. You want to fade moves that are at the point of exhaustion and overextension, not just because they moved a lot.
Until you learn how to buy before an uptrend develops or short before a downtrend develops entering on established trends during retracements is perfectly fine but you must do it right, with one very specific rule, I suggest a combination of concepts. For instance... Do use buy stops when buying but buy stops on the top of RED candles. Likewise, same concept when shorting, short stop on the break of a GREEN candle. Just don't do the buy stop on the green, as chances are the instrument will revert on you, and you take unnecessary heat and/or higher risks. Same with short stops, don't place them at the bottom of the red. Try it, you will be pleased, just make sure you learn which are the potential key areas where a retracements could end, and demand action from them, no action,no trade; when these areas fail, the retracement becomes reversal and on it goes to the next key area, where will you be repeating the same process. Don't think where price will go, go with price, zero prediction, learn to be like water, and adapt to the price action at hand, demand action, forget the illusions in your head. People fail in this business because they predict where price will go too much, don't, let price take you wherever it wants to go.
This entire discussion is beyond over simplified, there are so many factors that go into trading on stops or limits, with trend, reversals, trading ranges.. it just depends. As you can see, buying above strong "green" bars today worked just fine and you would have gotten your ass kicked doing the opposite. <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3511621>
RedTank, Wow, I just got a PM from another well respected member of the board that explained something very similar to what you just described, crazy coincidence. I just studied this, I like it a lot, thank you! ChkitOut if you compare your signals with what RedTank is saying, his/hers are vastly superior.
its complicated, buying above bull bars or selling above them or buying above bear or whatever is only a small part of it, it so much more than that, thats my main point.
Trading is a business. In order to succeed in business, you must buy low, and sell high. Or vice versa. It is the law of supply and demand. Using stops to enter the market at highs and lows is the antithesis of the correct business model. But it's what you are told to do, because trading is a zero-sum game: one winner, one loser. By buying breakouts, you are purchasing your "inventory" at retail prices, and then attempting to make a profit from it. Same thing with selling in a downtrend...you are selling at wholesale, and then buying at retail in the following uptick. Remember that the market only trends 20% of the time, according to the "experts". So buying at highs and selling at lows, theoretically, only gives you a one in five chance of making a profit. Not a good edge, by any standard. Think about the big retailers...WalMart, Target, etc. They buy at wholesale and sell at retail, they pocket the difference between what they paid for the product, and what they sell it for. You must be like them, buy low, sell high. Sell high, buy low. The market is constantly seeking liquidity, in the form of stops. Longs place stops below their entry price, shorts place stops above their entry price. The market seeks out these stops as they are where the liquidity is...the "Juice" if you will. As a trader, you want to be the hunter, and not the hunted. There are many ways to become the trader who seeks to capitalize on the hunt for liquidity. Learn them, know them, live them.
Sadly it is our nature to "jump in" when we fearful of being left behind so we ended up doing so at or near reversal. Most of us probably have to train ourselves to selling at extreme strength and buying at extreme weakness. Your odds should improve if you choose to go more with the general/long term trend i.e. shorting during down trend and going long during break out or reaction for up trend. Even down or up trend has major legs in the opposite direction so watch for that too. Be aware of the possible set up as well i.e. pull backs on strong up trend day usually are accompanied by another move upward and sideways movement during down day lend it self to another drop at the close. Weak stocks gapping up also has more chance to fill the gap as the day went on and vice versa. I think the more confirmations you get in your favor should improve your chances as well. Institutions usually know when the stock are vulnerable/strong so they will try to game it as well. After all it's a game of probability. People keep mistaken that institutions are out there to get the retail guy. But as many has explained before, this is not the case as most of the times as 90% of trade volume are institutional/HFT and 10% or less are retail so they're actually competing against themselves. It's a game that played every day and you're in the middle of the open war trying to make it out alive with your spoils of war. Reading the tape or bid and ask spread should provide you with some additional clues as well. If a large sized sale order is being absorbed quickly than chances are the upward momentum is still strong vs when a large buy order is being filled quickly than that would signal weakness. Watching the tape for irregular behaviors should provide some additional clues if things are not clear. The ability to know if something it's too obvious, chances are someone will see that too and this will lead to over crowding or exhaustion than a long or short reversal is probably coming up as there's no more willing participant left to continue the trend and the other side will begin to take charge shortly. Volume should some what confirm if the trend is drawing to a close but it's not conclusive by its lone some because you could have a small top or a huge blow off or something in between at reversal. Level two for market depth should help but I'm wary of this because why would institution want to show their hand to you or their competition? I'm sure many on this board already know this but this is additional information to consider in order to help diagnose stocks /other instruments behaviors.