Thanks for the great articles, PG. I actually did a few exercises with the MCWL (Marine Corps Warfighting Laboratory) guys mentioned in the article. Nothing cool like the trading pits though. I made a note of the ISAA (information, sort by priority, act, assess) process mentioned in the first article. I think that's something us at-home-discretionary traders can use.
Made two trades today, stopped out of both for + a tick! See the attached chart. I was looking for shorts coming in since we are trend down. I was surprised that even if I was looking to go long, the method would not have captured that morning rally off support at 1336. Around lunch time I finally got some short entries both shown on the chart. The pullbacks were a little too severe for the method, although after the first one I was cognizant enough to realize there was another short signal. After THAT one stopped out there was an AWESOME short sig on the 875 tick but I wasn't around. Sigh. That one went straight down like a rock. Hey, are you lovin' the pullback method yet? After days like today I wonder if, in the long run, it would be better not to go to breakeven so fast. My feeling right now is happenings like today are rare and it's better to be a tight-ass with those stops.
Actually, the stops aren't the problem. The problem may lie with the pullback strategy itself, even if you have some way of distinguishing between a pullback and reversal. If you were to buy the breakout past the swing point, you might have better luck.
Another trend I follow is defined by the 285 period SMA on the 5 minute chart. In fact my first profitable month ever came from trading a mechanical system with this SMA (no cross). If you do the math 285x5 min = about 3.5 market sessions. I've noticed some other systems floating around that use this same time span, e.g. a 34 SMA system on the 30 min chart. If price is above we're trend up; below, trend down. Underneath you see a MACD. I have it set to the 285 MA and the 1 MA! For the histogram it subtracts off the 285/2 = 143 EMA. I use this MACD just to see if price is heading towards or away from the 285 SMA, which I guess is easy enough to just look at the chart.
Funny you should mention that! I studied and traded that type of system for a few months earlier this year. I went through the entire March contract and studied every single swing point breakout between 9:30-11:30 AM EST. I made a big spreadsheet showing the maximum possible gain and the maximum adverse move for each trade. I traded it on the simulator with the June contract. Turns out I couldn't capture those gains very well. I just didn't have a good feel for it. Unlike these pullbacks, which I love. In fact, I did better (but not very well overall) fading those breakouts. I guess there's something special about every trader's mind's eye that makes him suitable for a particular style.
The next topic to address is exits. Once I get one of these swing trades to stick i'm sure we'll have some lively discussion going. But briefly, every day I note the best trade of the day the method could provide (whether or not I took it), the next (continuation) signal, and the best exit method. The choices for exits are key S/R level failures or an adverse moving average cross on one of my charts. I keep a spreadsheet that shows each month's distribution of best exits. September's is almost complete and i'll post the example when it's done. Note that the "Floor trader method" document doesn't say nearly as much about exits as it does about entries. Supposing I didn't miss that entry yesterday, short at 1380, where would I exit the swing trade contract? This morning before the open I drew two S/R lines, a key one above and below: 1332 dating back to 9/12 or so, and 1359 from 9/22. This morning we fell to 1332 and bounced off it. I would have closed the swing contract right there. Also note, the rally went right to 1359 and bounced off it. If the market broke through that and I had the swing contract open, that would be my exit. (Supposing that the morning sell off never happened.)
Taking every SP BO is probably not a wise course. At the very least you need some sort of trend filter. Otherwise you end up trading chop. Not every SP BO will succeed, of course, but a strategy that kept you out of the last two days' gains bears re-examination.