Ok - you definitely need a good amount of experience, results, and analysis of those results, to judge the varying trade setup quality. The way to determine it is just look at the results over a long period, over different market environments. I mean the real results, not data-mined theoretical results, or real money results during a hot period for that strategy, but over a wide variety of market conditions. Also you should look for theoretical soundness. Why would this strategy be particularly more profitable than another? For example, a strategy of fading stop-loss selling has a clear theoretical soundness - you are buying assets that are temporarily overwhelmed with market orders that are not based on value or economic rationale, but just because a certain price traded. Now, occasionally that price trading is an indicator of wider problems with the asset (example - gold falling to new yearly lows below 1525), but most stop-loss orders are indicators of nothing more than that a few weak hand daytraders or speculators put their stops in an obvious place and are getting squeezed out. Another example - breakouts to all-time or multi-year highs are clearly more theoretically sound than breakouts to weekly highs. An all-time high means the market is assessing the asset as having its best prospects ever. A weekly high just means it traded above where it was a week ago. One is clearly more powerful an indicator than another. So - combine theoretical robustness with superior real world results, over many time periods and market conditions, and you build up a picture of which setups work best. In a business where a 10% boost in win rate can make the difference between profit and loss, the difference between a great trade and a good trade is significant.
I tried to follow this no exit till 3 points suggestion on the first practice chart today. Then during the second practice, there was this feeling of being disassociated with the whole thing. I saw the price move against me to the degree where it invalidated the premise of the trade, but I just kept holding and after a while the whole thing just became devoid of meaning and I lost interest in the session and aborted it. So I just wanted to understand the reasoning behind this advice. My general reactions during exit situations: 1) Trade works to the extent that it is possible to create a DS line and determine when price crosses it: In this situation I am not having major issues with exiting according to rules. 2) Trade works just a little and then starts coming back to entry - My instinct is to close it out at or near BE. If the price action is not validating the premise of the trade, then what is wrong with taking this action or thinking along such lines? Why is it indicative of fear? Could it just be a case of a lack of skill in differentiating between what constitutes a failed trade versus giving the trade some more time to show itself? 3) Trade does not work and starts losing - Instinct is to give it room till some predetermined S/R level (usually within 1 to 1.5 points if the entry has been right). The breaking of the DS line is an exit principle based on the trend losing momentum. That makes sense. But what about when it is just around the entry point or is losing. What is the basis for managing these situations? Can I develop trade management skills concurrently with entry skills?
This is what has been so attractive about beginning to practice the price action approach to trading. There is a sense that what is being learnt is robust enough for all market conditions. And while it is certainly seductive in offering general principles to explain price movement, it is also very grounding, drawing it's principles from the empirical reality of what is out there right now. Wisdom with a blue collar sensibility of getting things done. Thanks for sharing this.
Wow, a thread where people are actually talking about stuff. I thought you went over to TL to stay, welcome back db, and great post!
I would like to address #2 A great PA trade is when you have a set up along with participation. A bullish pin bar where price goes back into the range of the prior candle with good volume. Pull the trigger and set a stop for the base of the pin bar. This trade should work immediately. If it does not, the bulls hit a wall, which should tell you to scratch the trade. If you scratch and price goes on in your direction, no worries. Price will breathe, and you will get an inside bar. Or, the bears will call in another division and you will get a high volatility stall ( outside bar). Take the breakout of that bar in the direction of the trend. That is another trade that should work right away. Always opportunities in the market. As db said, think process. Look at your statements quarterly.
Point #3 Bullish pin bar example again. You get the pin bar, with good volume, and you pull the trigger. Bulls are having trouble right away. What to do? Watch volume. Pro rate it. If you are on a five minute bar and after two minutes volume is on a path to exceed the volume of the prior bar, and the bulls are losing, get out. Wait for the next setup. The next setup will be an inside or outside bar. Act accordingly.
Without doing much if any analysis at all, it is clear that you are taking far too many trades. On 5/1, for example, you appear to have at least 12. I see 2. There are a number of possible reasons for this: (a) you're not defining your entry criteria clearly enough which leads to (b) entering too early or (c) entering too late which can lead to (d) price moving against you almost immediately which (e) prompts you to exit within ticks. Again using 5/1 for example, once you've taken a short at 0905 or 0907, there's no reason for you to exit at all as long as the trend is intact. I don't see any supply lines being violated here. It seems instead that you're exiting simply because price is bobbing back to your entry point. But if this is your sole criterion for exiting, you're never going to find a winning trade unless you luck into a meltup or meltdown. If the entry is right, then all you have to do is manage the trade, and nearly all your other concerns evaporate. But if you (a) don't define your entry clearly and/or (b) don't take it, then the trade becomes a mess almost instantly. I've explained my setup here and at TL but I'm not a class and I'm not a mentor. If you are more comfortable with some other strategy and some other set of tactics, that's fine. If it works. But all of this has to be defined and backtested (manually) and forwardtested (manually) before you begin to trade it, either for real or in sim. You appear instead to be trying to do all of this simultaneously, and while that's possible, it is highly unlikely, and, even if possible, will take an extraordinarily long time. To be specific, and again using 5/1, you enter a TR just after 0800. You're in this 2pt range until the open. Price breaks out of this range at that point, and if the bars at 0833 or 0834 or 0835 had been a RET in an ongoing upmove, you could have entered above -- not in -- one of these bars and been stopped in to the upmove. But that didn't happen. Instead, price returned to the range. So no trade. Price then broke below the range at 0837 by a couple of ticks, but unless your entry criteria define a breakout as a simple violation of an unconfirmed support line, there's no trade here either. You then have a DB at 0842, and you may elect to take this even though it puts you right back into the range. But there's no RET here except for that slight hesitation at 0844. If you want this, you have to take the DB. If you have defined this as a possible entry and tested its probability, fine. Otherwise, there's no trade here. Price then breaks out of the opening range again at 0843. But it can't make a higher high, so it's still range-bound. So no trade. Price does make a HH two bars later, but if one wants to wait for a RET before entering, there's no trade. If one takes the BO anyway, he's out two bars later at BE or better after the DL is broken. Then you're range-bound again until 0858, but, again, unless you take any trade that moves out of this range regardless of the extent or the presence of any RET, there's no trade here. Without any sort of confirmation at all, you are more likely being sucked into a bear trap, whether the trap is intentional or not. Finally you get a legitimate move down at 0905, and while in real time there's no obvious difference between this move and the move at 0858, there is a background of failure here, i.e., the failure to break out of the range on the upside. That failure alters the probabilities of a continued slide on this second attempt to break below the range, and that's what you get. If you hadn't, you just get out. Once this trade is taken, there are no reasons to exit. Even if one draws severe supply lines,, or no lines at all, you have a series of lower lows and lower highs, which, if you'll recall, are in the market, whereas any lines you might draw are in your head. And even if you have a line, it isn't broken until 0924, at which point you enter into another TR. Hence no further trades. These trades, or lack of them, are in large part the result of my own rules and there's no reason why you should follow them. If you want, for example, to trade inside TRs, that's fine, as long as you understand and accept that you'll be making a great many trades and most of them will likely be losers due at least to commissions and probably also to slippage. If you don't want that, then you'll have to decide that you won't trade inside a range and just sit on your hands until that range is exited. If you can't do that either, then the problem becomes a matter of poorly-defined goals and objectives that are incompatible with your "trading personality".
Thank you. I don't know that I'm "back", but few people at TL are interested in this. As for the comments regarding pin bars, they can be fine as entry/exit criteria, but the trader should remember that they exit only in his head, not in the market, so in and of themselves, they will likely be found to be inadequate at best and misleading at worst. The trader should strive at all times to trade the territory, not his map of it. Otherwise he will be making continual modifications.
I agree to a point. Until the trader gets into the continuum that you are are talking about, they need points of reference. Pin bars are quite subjective. Everybody has a different definition of them. I suppose unconsciously a trader learns the right milieu to trade them in, along with inside and outside bars and breakouts. I don't go over to TL that often, I spend a lot of time at FF( I am a code nerd), and I come here to just to mess around. It is good however to see someone who is willing to have measured discussion that might actually help someone. Kudos, I wish I had the patience for that.