Help me with this mental algorithm

Discussion in 'Trading' started by IronFist, May 23, 2007.

  1. Say you've decided the night before if you're going to go long or short at tomorrow's open.

    What is the best algorithm for opening price action when you've decided on a direction (long or short) for the day? I made a list of everything that can possibly happen (within reason) and I'm trying to shorten it to a set of rules that are profitable in the majority of cases. So for example here's one set of possibilities:

    Say the previous day was a red candlestick. The closing price is called x. Price opens at previous day's close following a red candlestick:

    - and goes up
    - and goes up and then turns down and goes below x.
    - and goes up, comes down and touches x, and then goes up
    - and goes down
    - and goes down and then turns back up and goes above x
    - and goes down, turns back up and touches x, and then goes back down

    (of course there are more possibilities, more crossings of x, etc., but those are the main ones I can think of).

    Now, take those same 6 rules and apply them to prices starting above x and below x. Now you have 18 possibilities. Now apply those same 18 rules to follow a green candlestick. Now you have 36 possibilities.

    I'm trying to come up with an easy-to-follow algorithm that can be applied profitably to these situations, like (assuming you're going long), "go long at open, sell if price drops back below x." That would prevent you from taking a serious loss if the price were to open, go up a bit, and then drop for the rest of the day. It would also keep you safe on a day that went up, came back down and touched x, and then went up for the rest of the day. Get what I'm saying? Right.

    I think I just need to think about it more maybe.

    Sorry of this is the wrong forum.
  2. No.

    But I'm only referring to money management in this thread, because you should use good money management regardless of what your edge is.

    Ok here's my thinking.

    There's this brain teaser/puzzle thing. It works like this:

    There are three cards, face down, on a table in front of you. You have to choose the one with the highest value, but you can only pick one card at a time. Only after you see the card you've just picked can you decide if you want to toss your current card and pick another card and try for a higher value, or if you want to stop and hope that you have the highest card.

    The solution to this riddle is to always take a card, toss it, and take a second one. If the second one is higher than the first, you stop. If the second one is lower than the first, then you go on and take the third card.

    Assuming n amount of trials, this algorithm will cause you to win >50% of the time.

    I'm looking for something like that related to the scenario I described above.
  3. ^ I meant 50% of the time, not >50%.
  4. Instead of using the closing price as a "focus", use the daily high and low instead as a way of coming up with a trend/momentum breakout trade.
  5. As you ease into trading, there are several things to consider.

    The beginnings and ends of day are not very informative.

    You may wish to consider looking at an oniom as a model as an example.

    For trading, asided from just looking, there is a beginner core and it is surrounded by 4 spheres of increasing diameters.

    To use your type of numbers for three basic aspects (the beginner core place) of the market, there are 8 of A, 8 of B and about 16 of C. 32 is the total.

    This is just a "status" of possibilites and not looking at change over time.

    A beginner has to be able to go through the day and deal with intraday changes.

    Your end of day and beginning of day are two points in time, one before the other. This pairing goe on all of the time through the day. for beginners there are always 30 some things that they can relate to to be able to compae the irst time with the second time.

    What to look for is changes ineach of the parts and to learn what these changes mean for making money.

    Obviously these and all the other pieces on the other levels can be put together by pieces and then just run automatically.

    The alternative is to pick and chose edges and that is what most people here in ET do.

    You probably will pick the "open edge" type trading which is written about widely and not too deeply.

    One aspect of it is worth looking into fairly deeply. That is the morning Synch. The markets are known to synchronize just after the open and this moment is hen a lot of open traders "decide" and take trades. You are doing it the night before based on something you think is very important.

    Not doing that is a first good step.

    Waiting of synch is helpful too since avoiding the messiness of the open is important.

    To meet your requirement and request for information and to also give you the exit for it, is not difficult.

    1. Enter after synch in the direction of the market.

    2. Exit the market when this inital movement has come to an end.

    3. Stay out of the market the rest of the day.

    after synch the direction of the market is determined by the range expansion that is beginning. everyday the daily range expands as the market beginns. It does this on increasing volume so using the volume to compliment this movement helps as well. you left out all of the volume aspects in your analysis so it was only less than 1/2 half of the picture. This is not good as a person who is thinking. you also posted the clues your mind was giving you with respect to this. Take those thoughts seriosly.

    You can tell when price movement is coming to an end. the easy way is to look at your profits so far. They have stopped increasing. Exit at this point and notice that the past increasing volume is no longr making the daily range expand.

    The exit ends your day. The reason is you no longer know what is going on in the markets. a simple rule of trading is to sideline when you do not know what is going on.

    For me, I looked at things and decided to always know what is going on and know on all five levels of the onion example. there are about 70 pieces to look at and to draw relations about.

    You may have heard that a lot of well known people took years to get good. I have heard that too but I did not experience it.

    Any person can take as long as he wishes to learn. It is like a stream meandering in a valley for most. The crow, on the other hand has a way of flying that gets the job done from day one.

    It sounds like you have not reached the step where it is possible to see the market. This is another crow thing.

    Your list is a meandering stream thing. Swampy too.

    If your plan is less than a 100 pages long, there is still more to do.

    The above suggestion makes about 75,000 a year per contract on the DJ.