A few years ago, someone told me that they were doing well trading BowTies on E-minis on intra-day charts. I don't have this person's contact info though (would love to follow up!). I would imagine if you did use something like bowties, you would probably have to use some sort of daily volatility filter. I know of some S&P traders that only trade when the daily volatility is low---this way the chances of them catching a high volatility trend day are much better (as volatility reverts to the mean). The other thing I would do is study market timing systems and only trade when they are or could trigger (for instance, the 3-day TRIN is approaching 20-30 day lows...or the VIX is stretching away from the moving average and hitting major lows). Dave
I've looked into this before and what has always concerned me is that the more bars you've had a trend, the higher the probability for a retracement. So can you give any tips as to how to make this a consistently profitable method? (I'm EOD only.)
I'm assuming you're referring to the persistency concept. You look to enter AFTER the correction--e.g. some sort of knockout move (TKO) or a plain vanilla pullback. Yes, of course, sometime the trends ends...but a lot of stocks can double off a persistent move. Study the homebuilders (e.g. RYL). Notice their persistent move in May. Then notice the nice resumption of the trend in June. Of course, the eventually topped, but they made a nice second leg after a persistent move and pullback.
Sorry - I missed a previous post where you said you buy on a pull back. Can you share any ideas on what you're looking for TKO or pullback? i.e. a bounce, volume, etc.?
I'm essentially looking for some setup that I follow to occur after a persistent trend. It seems that the TKOs are a good pattern for this. If you don't have the rules, you can email me and I can put together some slides. In regards to volume, I'm a price purist. I can take either side of the coin when it comes to volume discussions....so I prefer just to analyze volume. Did that answer your question? Dave
Let me ask it another way: would you actually turn down a trade because of overly high or low volume (or vice versa)? Volume seems important in other situation but I haven't been able to make consistent sense of it here, that I've never found a strong correlation between volume and a bounce off a pullback and am wondering if I just was looking at things the wrong way.
No, unless a stock is below a threshold for minimum average volume (i.e. thin), I won't turn down a trade because of volume. Richard Arms believes that stocks have an "ease of movement". If a stock goes down on light volume, conventional wisdom would say that this doesn't mean anything. The "ease of movement" theory would suggests that there are no buyers so it is "falling on its own weight". (vise versa for the upside). On heavy volume (especially with little price movement). Ease of movement would suggest churning--buyers meeting sellers. So, I can really take either side of the argument when it comes to volume. The bottom line is that I really don't use volume, I just focus on price. I would eventually like to test things like TKOs on heavy volume (maybe a lot of people are "knocked out" so the trend can resume?). If anyone here has time, I'd love to know what you find. Dave
Dave, Just wondering if you keep a journal of your trades? It would seem that once a trader has his plan of action and money mgt. down pat and all that is left is to execute the plan that a journal would be a good way to improve upon or find flaws in the plan. Alexander Elder goes over how to keep a trading journal in his new book and I have read in other places on the net that a keeping a journal can be a real eye opener for traders. Since I really don't trade that much I started to print out all of my trades from entry to exit. Thanks Eric Wagner