I mentioned some posts back that I prefer to look at data rather than indicators to get some idea of where we are and where turning points are likely to be. Below is a chart of the Naz that will illustrate some of what I'm talking about. I understand that this may have nothing to do with the thread in terms of BO strategies. However, it does address the importance of S/R with regard to unreasonable expectations and with regard to whatever reversal strategies one may want to employ. The charts are largely self-explanatory. The top is a chart of the volume of decliners. Note that the DNV is greatest on the 11th (shown in red on the price chart). It then declines as price falls, suggesting a lack of buying interest rather than aggressive selling interest (if the buying interest matched the selling interest and price fell anyway, the daily volume would be higher). The bottom is a bar chart of new lows. Note that the greatest number of new lows -- the "climax" -- occurred two days before the bottom. One could not know that in real time, of course. But, at the end of the day on the 24th, or the next morning, one would know that the number of new lows was less than it had been two days earlier. Coupled with the steady decrease in DNV, the trader would be justified in placing a buy above Wednesday's bar. Again, this may be completely off-topic and of no value to anyone. If so, the mod can be asked to delete it. As for the NYSE, the picture is essentially the same. As to why price stopped falling where it did, bring up a 3-year weekly chart of the Naz and I think you'll see why S was an important factor here.
Eprado, OK here is how I exit my trades win or lose. 1. Shoot for 2 points, if momentum is really strong go ahead and stay in until the first sign of slow down and get out. 2. If price goes 1.5 points and starts reversing take 1 point and get out with profit. 3. If price goes my direction 1 point then all the loss I will take is 1 point (Kind of a modified trailing stop) 4. anything 2 point loss Numbers 2,3 and 4 are with the idea that I can always re enter at a later time if the signal comes up again. This point strategy is with the focus of not letting a winning trade turn into a losing trade first and foremost. Even a .5 gain is still a gain keep that in mind. I talked to one trader that uses large positions to capture 1/2 a point once a day and he earns his living like that. A gain is a gain and that is better than the guy that you bought the contract from. How's that, 4re
This is why you are a very asset in here. Mark Douglas says the pros look at chart farther out and the rookies always look closer in for their indicators. Which trader would you want to be. Your chart is dead on. 4re
Thanks. Great explanation. I trade out very similar to you. I also use a trailing stop. Sometimes it's based on points...sometimes area on a chart. Once I hit my initial 2 point gain, that trade will never turn into a loser. I use physical stops to try and take some of the thinking out. In my opinon trying to make 1/2 point a day is a tough gig. You have to be PERFECT. Not much room for error. What happens if his first trade is a 1/2 point loser? Is he done for the day. Not saying it cant be done....but doesnt really give you much room for downside. I would think mkts like eurodollars or other very short term interest rate mkts would be better off going for the 2 tick gain and out trade.
The important thing is saving your winners. It doesn't really matter how you do it just come up with a way to exit with money in your pocket. And be systematic about it. That guy is probably pretty close to perfect and he has very tight stop loss on his trades. He uses basically the same momentum type trades that I do. I don't remember the last time he said he lost on a trade. He once told me that he can double his account about every 21/2 months. That is not bad at all when you are on a fixed income. 4re
If you're going for a 0.5 profit target, what size of stop loss do you have to use? If only 0.5 SL, just market noise will take you out quite quite often. I worked with a 0.5PT/1.5 SL for a couple months. Had a 90+% win rate in backtesting (which yields a positive expectancy). However, a loss wipes out 3 wins. So, when a loss did occur, the psychological hit sometimes made it tough for me to take the next trade knowing that the 3:1 risk/reward ratio was there (even with the confidence of 90% win rate). So on paper, while a method with a 90% win rate using 0.5 PT/1.5 SL can make money, I found it difficult to implement consistently. Invetiably, the trades I'd hesitate about (usually after a loss) would then win, and my real win rate didn't meet the theoretical win rate.
It needn't be that way. For example, your entry trigger on Thursday was 68. If you consider this in the context of the chart I posted (the SPX, like the NYSE, is also similar), your entry trigger is the same as it would be for someone trading swings on the daily chart. This should provide extra push for the upside. The danger, of course, when daytrading, is allowing this assessment to become a bias and affect the strategy. Since there are no guarantees, this departure from the strategy can result in a substantial loss if price does not do what's "expected". As it turned out, Thursday was not a bad day, and closed at its high. However, the real push did not take place until late afternoon. The rest of the day was spent backing and filling, which is also not unusual at turning points, but which can kill you if you either keep trying to catch the "real" push or widen your stop to a level that is uncomfortable, if not foolish. It's at points like these when it pays to swing trade the SPY or the Qs and daytrade the minis. In either case, the key here is finding S and working with it to one's advantage.
In my opinon being systematic is the way to go. Again...trading is tough enough, and anyway in which one can simplify things can only help. When I fall into slumps it usually because I start to "think" too much. When I am on my game its because I am systematic. Get into a trade....set the stop loss....set the profit goals and let the market do the rest. The only adjustments I make are when the mkt is going my way, I move up stops. When I stray away and let emotions get involved, the game plan goes kaput . Here is an example of some trades that worked for me Friday. I use 15 min charts for shorter term day trades. I look for candles with tiny bodies/ long needles to use for s/r. The first one topped at 1279.50 Shorted at 1279.25 2 bars later. Took some off at 1277.25. Then I used the pit low of 1276.75 as a big area. If it broke, look to ride it...if it holds cover up on way back up. Once it cracked I covered some more into what I figured were stops/some longs throwing in the towel. The last part I give back back to 1277 area. When riding a trade in my favor to the short side I wanna see thick red bodies. The needles tell me that their are buyers coming in to scoop up. Now when the mkt comes up AGAIN tothat resistance I am not as confident and will trade a smaller pos size. In this case it broke through and your style woruld work like a charm. Later you see at 1281.50 another spike/good resistance area. I look to get short right under at 1281.25. Similar to the first trade. Again the needles give me much more confidence. If the bar up to 1281.25 was a full body (green), I most likely would pass on fading it. Nothing crazy goin on here. Pretty basic s/r levels. To me this is the easy part of trading. The tough part is trading out once you are in.