Hi, I just took a look at your chart and am curious as to how you would trade it. At what point would you enter the trade, at what point would you exit the trade assuming the current last price were the top, no one knows whether or not it is until after the fact, and what would be the drawdown from the price top to the exit point price assuming for interest sake this were the top. All based on the EMAs defining the trend and of course we engaged in trend following. Cheers John
I enter a bit straight away to take away the feeling that I will miss the opportunity, then if price moves against me I enter a little more which brings my average price down and so on
You can add to your position at the moving averages as they often represent a good value entry in respect of the trend and time frame your working with
To be honest I was hoping to have the price levels defined in order to clearly understand the RR inherent in the strategy. Cheers John
Generally my positions in Derivatives (futures,options) reflect 1000-2000/1 leverage, if I tried to trade your method my accounts would be ticking timebombs, the lag time is just so great. But as they say, each to their own. Periodically I will get a call from one of my various brokers when they have their new assistants trying to generate additional business (my actual brokers know better than to ring me unless it is something important). Anyhow, I told him straight off that unless he had a way to reduce my costs or better manage my risk then he probably didn't have anything to interest me, which of course he didn't. He then asked if I would mind answering a few questions, so I obliged. After about 20-30 minutes I realized how long we had been on the phone and went to wind it up by summarizing, I was a professional and he didn't have anything that might help me, so I wished him well but I had to go. He thanked me for my time as he realized I was a busy professional, the way he said it prompted me to ask what made him so sure. His answer was important, " because during the whole conversation I answered every question referencing the risks involved and how best to manage them", risk being my sole focus. Trend following is simply one of many risk management techniques. In order to succeed in this business you must survive, the way to do this is to continuously hone your risk management. The closer to the lip of the wave you can ride the less risk you will carry(smaller drawdowns or losses) and far better RR, therefore the more likely you will survive, it's a numbers game where you only need to be right a small percentage of the time to succeed. Ultimately you only need to survive to make money, as simple as that. Professionals manage risk amatures lose money. Cheers John
Defining a trend over a given time period x is easy, and can be done by any number of methods. However, how do you choose the value of x? Choosing x is arbitrary, and trading a trend going forward based off of x will be randomly distributed. The smaller the value of x, the more random the movement of price will be. That is until you reach the HFT time scale and can possibly get a structural advantage over other market participants. You are left with two fundamental trading strategies based on price action alone. Trade the momentum in the direction of your defined trend, or fade price weakness toward the direction of your defined trend and get out quickly in either case if you are wrong. However, since your choice of time frame is arbitrary and your choice of what constitutes "wrong" is arbitrary, again, your results will be randomly distributed. So what the hell do you do then to try to do better than 50/50 odds? Perhaps filter price action against volume action, fundamental information, or trade some statistical relationship between multiple instruments. Sorry I don't have the holy grail answer here, but I'm just a retail guy with no "edge" in anything, and have never done better than break even using only price action and TA. I just don't believe trend trading works, unless perhaps you extrapolate to a decades long buy and hold diversified strategy, and even that has been shown to not always be guaranteed to be a viable strategy.
Like others have said, defining a trend is one thing...trading a trend is something completely different. Some folks have problems in trading trends due to their trade management after entry. Basically, nothing wrong with the entry into the trend...the problem is how they exited the trend. Other folks have problems in trading trends due to their lack of misunderstanding the market context of the trading day that has nothing to do with TA. I can name many other variables about why folks are not able to trade that trend when they see it but that would then move away from TA section and most folks are not willing to get into that topic unless they move this thread into the "psychology" section of ET. My point is that if you found no edge in trading trend via price action and TA alone...maybe its time for you to look into those other areas of your trading as I mentioned above if your desire is to be a profitable trend trader. Trend trading works, you just got to think outside the box to determine if you have problems in your trading that has nothing to do with TA. The other issue as I explained earlier, I'm a strong believer that prior to being able to trade a trend successfully...we also need to know what causes them to develop in the first place (it ain't TA).
Are you talking about defining or measuring? They are significantly differently. If defining, the only acceptable method is with words put together in a logical and meaningful fashion. And as you see from previous posts in this thread, there is no universal agreement on the definition ("trend is order flow" ?!). If measuring trend, there's nothing easy about it unless you're willing to settle for the simplest binary outcome ("trend" or "no trend") conforming to whatever definition is being worked off of. Choosing x is easy once you have a comprehensive method of measuring trend based on a reasonable definition of trend. Simply choose the value of x that maximizes your trend strength, or your trendiness. It is the quantification of these values that is the challenge. Accurately quantifying trendiness is the hardest thing I have ever attempted and for me it is still a work in progress. But the potential payoff at the end is enormous so I stick to it.
Got to disagree. Any method to define or measure a trend should be independent of the scale of the time frame. Example, the simplest definition of a line in xy coordinates is two points. The slope (trend) of that line is dy/dx (rise over run). I can apply that definition and calculation over any time frame (or fractal time scale) I choose. What frame I choose is arbitrary from the perspective of the broader market for that instrument (ie other traders and investors.) It seems like your method curve fits in the reverse sense. That is, it picks a slope (trend) and best fits a time slice to that value.
You and I are on different pages. Trendiness is independent of slope. And I personally place no value on slope measurements because price is not differentiable.