Yes, it was so frustrating yesterday to watch every one of my scratch trades go from at least 1.5 pt profit to stopped out b/e. If I'd had 2 or more cars I could've scalped 1-2 pts on half and leave the rest locked in at b/e in case of a further move in my favor. I think I had 4 scratch trades; the scaling ability of more than 1 would've translated to an additional $200+ in profits.
Mr. Doji, or Mr. No, as the case may be, I notice much posting on your thread, suggestive of trading wisdom to be found. After a quick read of your recent posts, it seems to me that you are contratrend trading, shorting double tops, blowout highs, etc. Is that a valid generalization? Kala Christouyenna.
I'm a Ms. NoDoji I day trade so I use two intraday strategies, counter-trend and re-entry with trend. 1) I look for trend reversal signals, especially after 3 legs up or down or after a large climax move. I find these trades especially gratifying because they usually result in quick pullbacks toward the 20-period moving average. Double tops, and double bottoms are "confirmed" trades, meaning previous S/R has been confirmed by a failure to break higher or lower, and the chance of a profitable trade is very high. I may also try to pick a top or bottom, which often results in scratch trades, but sometimes catches the best move of the day. 2) Once a trend reversal is signaled by a higher low or lower high after a strong trend in one direction, I look to enter with the new trend, shorting a lower high, going long a higher low. I prefer shorting because on average price falls twice as fast as it rises. I sometimes watch price on a stock take over half a day to rise to a level only to fall back to lows in 30 minutes or so. Yesterday's 24-pt pullback from the high in ES was a good example of that, even though the economic news was fantastic. I can't remember the last time we had a 24-pt move to the upside in ES despite the overall long term trend being up.
Ah, Ms. NoDoji, that being the case I shall confer on you the diminutive Tonbo-Tohbo, they being the blowout dojis you like to trade so much. Would you be willing to engage in a dialogue with a novice trader, at times that do not interfere with our trading? I would start by asking how for ES you settled in on a 20 period MA, I assume the exponential? One could draw many EMA's of varying periods around that one and price would appear to bounce off of one or another every day, perhaps several in one day, or different ones every day. I have always been confused about the utility of the EMA in intraday trading. I have other questions about your reply, but they can wait.
I like the 20-period MA (exponential on my ES chart, simple on my stock charts; they're pretty similar), because it tends to provide the best floor/ceiling for entering with trend, and for detecting a possible trend reversal. If you look at the chart on the last post on this page (6/10/09), you'll see an example of how price in an uptrend pulls back to the 20 MA and pushes higher, leaving higher lows and higher highs, which of course defines an uptrend. This chart also demonstrates the quick move you can often get shorting an exhausted trend (usually after 3 or 4 pushes), or even taking counter-trend profits on pullbacks to the trendline/20 MA. http://www.elitetrader.com/vb/showthread.php?s=&threadid=132626&perpage=6&pagenumber=136 If you look at the SYNA chart I posted on 6/12/09, you'll see a good example of how I traded with trend (to the short side) right from the open, minimizing risk by taking profits at oversold stretches from the 20 MA, and re-entering on failure to even pull back to the 20 MA: http://www.elitetrader.com/vb/showthread.php?s=&threadid=132626&perpage=6&pagenumber=138 The reason I also have a 10-period MA on my stocks charts is to alert me to the price zone where scalpers will take profits or attempt to maintain (or resume a previous trend). If the L2 price action doesn't contradict my position I may patiently ignore this "scalper's bounce" and leave my stop at a b/e point, looking for continuation of the move in my favor. The reason I didn't do that with SYNA on 6/12 is because SYNA had huge short interest at the time (46% I believe) and a sizable spread, so it could squeeze you out in a heartbeat with serious slippage and I wanted to take quick profits on each "breath" of the move to minimize my overall risk. This is the value of trading one thing often over time: you begin to get a feel for its particular personality.
Thank you, Tonbo-Tohbo, for your explanation. My issue with EMAs intraday is that I could pick a period at random, and over time notice that price sometimes bounced off of it reliably, and sometimes subsequently crossed it again. I would then say either "The X EMA touch held" or "The X EMA touch failed." What to do? Pick the period where most often it "held?" Of course, that's exactly what we do. This is a bizarre way to design a trading system. The fact that some posters here and authors elsewhere swear by the 20 EMA intraday is no proof of efficacy. Back testing of "tests" of an EMA has a nasty habit of turning up random optimization results. Many were the hours I spent doing just that when I should have been out in the fresh air prowling around. That said, my belief is that each instrument has its own idiosyncratic periodicity, so were I like you trading multiple instruments I would consider that possibility. Twenty may be right for ES (I assume you mean on a one minute chart?), I don't know. It is way off for what I trade, for what that may be worth.
I use a 5-min chart for ES, and a 3-min chart for stocks. I don't think it matters what, if any, indicators you use; I think what's most important is you're able to settle on several "pictures" of price action in your preferred time frame that leave you with confidence based on the positive expectancy that derives from predictable follow-through. Whether its price bars alone or price bars with additional indicators, once you internalize patterns and the most common moves they've triggered throughout history, as well as the reaction to the shock of a failed pattern, you eventually reach the point where you simply react to setups and exit or reverse when the expected follow-through fails. I also use multiple time frames outside my trading time frame to locate fractals of confluence where, for example, I may see that price on a daily chart is overextended and on a 30-min weekly chart is overextended, and then look for a trend reversal signal on a 3- or 5-minute chart based on a previous day's high, low or closing price. I think a strong visual memory has been of great benefit to me. This allows me to quickly internalize the patterns painted by price bars alone or price bars with indicators. Over time I find myself reacting more and more intuitively to setups when they appear; trading my strategies is gradually becoming as comfortable to me as driving a car. New traders may study historical charts and then find indicators or patterns that predict price action "every time". They then believe they've discovered the Holy Grail. This may lead them to disbelieve failed setups and refuse to exit a trade whose setup has been invalidated, or to average down until they're suddenly in big trouble. So I always have a max stop loss for my trades, and a specific trading plan to match specific setups. I think the most important step new traders can take is to create a trading plan with max capital risked per trade, max loss per trade, max loss per day. DO NOT violate the plan! Even though a pattern follows through "every time" there are exceptions that can wipe you out if you refuse to exit or continue to average down. Look at this year's charts of AIG, GMCR and MTXX for examples of major breakouts that did not "come back".
So at heart you are a pattern recognition engine, with the added element of emotional recognition of the impact of the unexpected? Less quantitative than qualitative? Tuning in essentially to overbought/oversold conditions? I ask because that is wildly different from what I do, which is rigidly mensurated, with decisions by the numbers, and I am interested in how you do it. Don't tell me female intuition, I don't qualify.