Keeping It Simple

Discussion in 'Index Futures' started by dbphoenix, Nov 27, 2002.

  1. dbphoenix


    Sure, no problem. Today is as good an example as any.

    Two points to keep in mind. One is that you will have much more flexibility trading multiple contracts. For example, you can cash in one or more contracts if and when you hit your price target and manage the remainder in case price overshoots the target, which it often does. However, you can also trade just one, and that's the example given.

    Two, trading the reversals is strictly optional. This wasn't included in Mike's original proposal and is included here only because you might be interested. Without them, this would be a one-trade play for +5 (per contract, of course, depending on whether or not you're trading more than one and on how you manage them).

    #41     Nov 29, 2002
  2. dbphoenix


    The file wasn't accepted. I'll try to email it to you.

    #42     Nov 29, 2002
  3. dbphoenix


    I see you don't want to receive email. I'm open to suggestions as long as they don't involve doing the chart all over again.

    #43     Nov 29, 2002
  4. David I

    David I

    Does this help db?
    #44     Nov 29, 2002
  5. Yikes, I leave for a bit, and the thread has taken quite some turns. I'm not going to reply to all of the posts I see, I'm just going to stay focused.


    Back to where we left off. I agree, without playing reversals, this strategy is very simple. I mean who doesn't understand a breakout? Even with trading reversals, I don't think it would be that complex for me personally, since reversal trading is already part of my regular routine. Though my goal is not to use your strategy per se, I'm just trying to understand what you are doing these days. I have already learned a few things from you.

    When you play your reversals, are you using the same 2 points from "breakout" price entry and 5 point initial exit stop, no matter what setup you are trading off of? Or do you adjust point values for length of candles on the pattern/volatility etc.? I'm just curious if those early morning point values are a constant for you throughout the session.

    I'm pretty sure I understand the rest. What I will probably take from you is the checking of the pattern I am thinking about trading on the ES before I jump in the NQ to make sure the two contracts are trading relatively harmoniously with each other. That's a real nugget, and I'm disappointed I didn't think of that myself.

    I also like the idea of starting the day's session coming off of an opening range breakout. I will probably play the break differently than you or others, but that's how I operate. Usually I'm willing to assume much more information risk than others (entering earlier than them), and trade that off for potentially less price risk (initial exit stop closer to my entry price). Whether this will work out better than your plan or not, I have no idea. I do know I will feel more comfortable. If it doesn't work out for me, I can always move closer to what you or others are doing. Like Bugs Bunny said, "if you can't beat 'em, join 'em."

    In addition to that I will consider your idea of when to exit a trend trade. As I understand it, you do not trail stops along lrh/lrl's you draw the trend line and when that is crossed you move your stop to the deal breaking area +1 point.

    What I have been doing is let's say I'm short a down trend. I try to exit on the first higher swing low. The tricky part is determining when the down swing is really over, and the up swing is born. That I feel is usually subjective, and at least for me, intuitive. This gets me out early, but there are advantages/disadvantages to everything. Incidentally that would also be the exact location I would like to buy long when stalking a down trend. I know you like to enter on break of a swing high, vs. the setting of a higher low.

    What I will not take away from your strategy is the use of multiple time period charts. You are the one who drilled into me the use of one time period chart to manage my trades. I am grateful you made that point to me long ago. I am comfortable using one time period chart for entries, stops, exits, trends, etc., and would be uncomfortable having a 1m, 3m, and 5m chart open and deciding which to use for what. I will pick either the 1m, 3m, 5m or whatever and use it for everything. Maybe 2.5m would make sense.

    I would be happy to discuss your favorite reversal patterns and how you use them. I'm familiar with many from my trading, but it can't hurt to find out if I am missing something that I could add to my arsenal.

    Thanks again,

    #45     Nov 29, 2002
  6. dbphoenix


    Thank you, David. Don't know why it wouldn't accept my attempt.

    #46     Nov 29, 2002
  7. larrybf makes an important point as well. His specific time frames are not nearly as revealing as the ratio of lengths of his ma's.

    There are no magic numbers.... just great concepts. The question you have to ask is what is important about a 5:1 ratio. Many will get hung up on, "why not 6:1 or 4:1?" Immediately you are off track. Not wrong...just off track.

    larrybf might have a different answer than I do, but I provided my answer in my first post on this thread.

    Nice one larry.

    #47     Nov 29, 2002
  8. dbphoenix


    Smart. Ignoring the noise is the only way to make any progress.

    Yes, I do. I backtested several different combinations of trigger and stop, but they just weren't satisfactory. The two points seems like a lot to give away, but the tick business, or even one point, was not an adequate measure of intention. This doesn't mean that the two points is risk-free, but the results were better, so who am I to argue?

    On the other hand, this is not a mechanical strategy. If you've got some experience under your belt and you know that you're about to do a stupid thing, then don't do it. Today, for example, the first reversal only got four points past my entry price rather than five, so, mechanically, I should not have moved the stop up to BE. However, this was the third attempt to get past that little congestion zone, which was turning out to be not so little after all. And the trendline did get broken just above BE. So rather than be stubborn, I raised the stop to BE (if the trendline had not been broken, I may have left it alone; I guess we'll never know). In any case, doing so put me in a good position to take the next reversal trade which wound up being good for three points.

    As far as I know, nobody else is doing this. Mike, at least, uses a breakout of the 30m bar. Natalie had been using the 30m bar as well, but I believe she's been experimenting with a 20m bar. The reason why I chose the 1m bar was that I wanted price to find its own level and breakout point. Sometimes this is as early as 0935, depending on the gap, if any. Sometimes it's 0947. Or 0953. Or whatever. Waiting for an arbitrary interval isn't logical to me, though it makes sense for anyone who wants to lean toward the mechanical side (e.g.,

    Granted this is the least simple trade of the day. The degree of gap, if any, will affect the struggle, as will 0945 or 1000 economic reports. If there's no gap and no reports, it's easy, like today. If there're both, then choices have to be made, though if one doesn't want to make them, a breakout of the 30m bar may be just the thing.

    That's correct. I used to trail the swings, but I found that I was too tempted to TTMR, especially if the trade was going particularly well. Instead, I trust the impulse and just leave it the hell alone. This may mean that you have to re-define what it means to be wrong in the trade, and you may even have to be satisfied with less than the maximum number of points. But if you catch a trend, you will also avoid having to make continuing re-entry decisions.

    I understand what you mean. In all these years, I've never found any better definition of trend reversal than Sperandeo's. No, it doesn't work every time. But nothing else comes even close. Therefore, until that last reaction high/low is taken out, I assume that price is simply resting in preparation for a continuation of the move (one reason why I don't want to get too close to this with a stop). Granted there may be times when the reaction takes place at the same time or after the trendline break, but that's okay (this happened today on the first short trade). The same point is used to cover either way. And there's time to enter a reversal as well, though you have to be ready for it and not futz around.

    As for your example, sometimes the higher low is enough and sometimes it isn't. A higher low may simply be a part of the consolidation process, and if it has not yet broken that last swing high, then the odds are that consolidation is what it is. Yes, you may pick up a few extra points by getting in "early". But you may also lose your entire loss limit by entering on the wrong side of the trade and be in a poor position to make a continuation entry to boot. Depends on what you want and what you're willing to risk.

    I don't recall suggesting that you use only one timeframe. The 1m may be good for entry, but it's terrible for trendlines and reaction points, unless you're scalping, which would defeat the purpose of the strategy. You may find the 3m to provide the best trendlines and reaction points. You may even want it for entry. But you should have at least one chart in a longer timeframe open for context (you needn't avoid going long just because price is approaching resistance, but you will likely want to know that it's there).

    There is no one and only timeframe here. You may want to use a 15m bar. The point of all this is to provide ideas. Perhaps somebody will take away just one thing to improve their results. I picked up several ideas from Mike, but I doubt he'd recognize what I'm doing (but then you never know).

    The first reversal today was marginal at best. Ordinarily I'd have liked to see a double bottom or a 2B. But with volume what it was, that didn't seem likely. If I hadn't had any money in the "bank" (the previous trade), I wouldn't have taken it at all.

    The second reversal, though, was much better in terms of trader psychology. There was a congestion zone providing resistance, there were three attempts to get through it, there was a trendline break, all of which told longs to sell and which encouraged shorts to enter. I wish that the day had been a bit longer. Given the action just after the bell (before that big spike down), I might have made an extra 3-5 points.

    The patterns I look for are nothing complicated: Ms, Ws, lateral (not trendline) support/resistance, 2Bs. I'm sure you know as many as I do, but I focus on only a few high-probability/low-risk setups and let everybody else fight over the others.

    #48     Nov 29, 2002
    VPhantom likes this.
  9. dbphoenix


    From Brandon Frederickson:

    One of my biggest pet peeves in life is that there are a number of people who are led to believe three things, each of which are false and lead to heavy losses.

    First, they are lead to believe that you should trade a number of times a day. I think it is evident from my journal that while I am pretty much of a scalper, it is not required to trade tens of times a day. This leads to your transaction costs eating you up. Once you become efficient it is about the size of your quality trades, not the quantity of trades taken.

    Second, you don't need to make 20 points a day to make a living in the market. Many people have told me they make 20 points or more (per contract) per day, yet not a single one of these people have been willing to produce anything that proves this to be the case. Nevertheless, many new traders look at the charts, and in retrospect it seems very easy to pull 20 points out each day. They strive for a goal which is not going to be hit, and in the process make all kinds of other mistakes that ultimatly hurt them badly.

    Third has to do with margin. Trading 1 contract for every $10,000 in your account, you can not get hurt too badly, and you are still able to nicely take advantage of the margin. I have seen too many people go with brokers who let them trade intraday for $1000 or less and blow up in a day or less. Leverage is great, but its a two edged sword, and the edge that can get you is the sharpest one. Misuse of margin is one of the most dangerous mistakes I have seen people make. Unfortunatly, most people won't believe this until they experience it themselves. But that doesnt make it untrue anyway. A goal of 10% per month is attainable as I have shown here provided you are patient, wait for your opportunities, take them when they come, and are disciplined in all aspects of your plan. A gain of 10% per month adds up to 120% per year,
    #49     Nov 30, 2002
  10. Forget the noise? Oohhhhhhh! My bad. I thought this was an open discussion about simple trading methods. I didn't realize that it was a closed discussion between dbphoenix and those who want to discuss the method dbphoenix trades. My mistake entirely. Perhaps then this thread should be moved to the Journals section, you know, since it is about you db, your method, and your profits and losses.
    #50     Nov 30, 2002