https://www.elitetrader.com/et/threads/a-simple-price-action-approach.220303/ Read it through to where Metal stops posting. Keep it simple...
imho,along with a post by @Simples which i gave a like to yours is one of two top posts this week. Edit: You may find some goods from this and some posts on ET from around 2005 (±)2 years,go through each one of them http://www.jltrader.com/wp-content/...ability-Theory-Related-to-Trading-Systems.pdf
Yeah, I've seen very simple methods in which the trader makes the trade over complicated or stressful. Yet, I've always view such methods with rules that are too subjective when details of the actual trade signal aren't explained. Like some do with trendlines and channel...that stuff can be automated and many standard programs today does such for the trader. Thus, the only thing a trader needs to do is develop a trade signal so that it would tell him if or if not its a trade when the price reaches the trendline or channel. That's another difference. Traders have different trade signals when trendlines/channels are reached. Some will get a trade signal while others will not get a trade signal for the exact same trendline/channel. I remember a trendline thread here at ET. Several traders drawing the same trendline but some got trade signals while others did not. The difference was that one guy was looking for specific types of candlestick patterns, another using flag/pennant patterns, another using info from his DOM (bid/ask) while another using volume analysis...but all using the same trendlines. Each with different statistical results for the same trendlines/channels. Yeah, they all had different results which is why some conclude trendlines/channels are subjective even with simple variables because of the difference in trade signals while others conclude the same subjectivity when the trendlines/channels are drawn differently because they're using a different set of simple variables. Then the other issue is the actual trade itself. I've seen
No time to read it now, but this looks like a very interesting link. I've always wanted to read up on stats relating to trading, but without going through a stats textbook. Just something written by a trader, for a trader, who can explain ideas with concrete examples and not just equations. So this should be a good read. Thanks.
Absolutely right. I even wonder sometimes about how a trade signal affect performance. Of course you need a reason to enter, but this reason is in some ways a confirmation, and this confirmation usually means a worse entry. I will explain what I mean. Suppose you're looking to buy at the previous day low. If using a 5 minute chart, and wanting to buy above a bar that bounces somewhere close to this low, and using a stop that could be below the bar, then you might have to use a fairly big stop. If basing your entry on a 1 minute chart, you entry might be lower, hence your stop can be tighter, but certainly you might end up with a worse win rate because you might be sucked into trades that don't end up working. If you lets say have an order to buy right at the low, you're taking a fairly risky trade, since price can blow right past your level, but at the same time, you're getting the best possible price if it should happen to trade down to this level to the tick and bounce off. You can use a tighter stop with this approach, which might make up for the smaller win rate of trying to catch the falling knife. Statistically speaking though, this might not be any worse off than waiting for price to bounce off a level nicely, and buying 3 points higher, but now having to use a 4 point stop lets say, whereas before, you could have used just a 1 point stop. So this trade signal business is a huge variable like you say.
Its because of trendlines/channels...I started thinking that I wish there was a standard for drawing trendlines/channels by some official international TA organization. I wish there was a standard for many other methods like support/resistance analysis. Yet, due to human nature...that's not possible. We think "our way" of drawing trendlines/channels is the correct way, efficient way, easy (simple) way or whatever. Unfortunately, the person in another city that's looking at the same price action is thinking that his/her way is the correct way, efficient way and easy (simple) way...that's different than someone else thinking the same thing. Others come along and say prove it via requesting for them to be drawn in real-time and then lets see what happens when price action reaches the trendlines/channels.