I think you are still missing the real point here - it's not only the indicator - it's the whole idea on how to go about trading. I didn't go back and verify, but I think there are at least 3 or 4 other people on this thread who have come up with something that seems to work along the same lines. I don't think any of them are doing *exactly* what I'm doing, but they are using the same idea as far as how to make the trades - manage the trades, whatever you want to call it. A good example of that is what macal did yesterday- yes, it's only one day. But he isn't doing exactly what I'm doing - but he is applying the same ideas I am. Can I say that those ideas are the edge? I don't know. Seems like they are.
I don't recall that Quah stated when he began fooling with this, though when he began posting his results we had already sunk into a period of congestion (more than two weeks now). Given that, it is unlikely that any trending method would work, even on a 1m, unless one considers filling a gap to be an extremely short-term "trend". In congestion, one has a choice between scalping and doing nothing. What Quah has come up with, essentially, is a scalping method, not much different from what Gary Smith (street.com) uses with regard to taking profits at a certain point rather than letting them run (Quah is correct about this "let your profits run" business when it comes to congestion, or even oscillation). As has been noted, however, this particular scalping method concentrates itself during the busiest period of the day, and since price must move in just about any method in order for profit to be realized, the odds of making a profit or taking a loss are greater during this period than they would be after, say, 1130, when price can drift within a point or 1.5pt range for ten minutes, and the longer price drifts without doing anything, the more tempted one feels to engage in boredom trades. As to whether or not this would work in a trending market, it most likely would since price would be moving. However, since price would be moving directionally rather than spastically, then using a tight followstop might make more sense than the continual re-entry, each of which requires a new decision regarding whether to go long or short. If the market ever trends again in our lifetimes, it'll be interesting to find out. --Db
Ctrader's post that I quoted and your reply seems to imply otherwise. And you're right: it's the discussion following which is clarifying to me that there really isn't much of a system going on here. Sorry I might have read some of Mcal's trading posts as your own -- but re: SAR trades, why do losses give you an additional trading opportunity outside your pre-set entry windows? Like you keep saying, why change things if you're profitable? So a profitable trader has nothing to gain from this (that much I agree). What about unprofitable traders? Slap on a fib-timed entry and SAR trades to get back losses, is that going to change his (un)profitability? I don't know. But with any system, you have to understand exactly what it is that captures the edge, otherwise you will get these kinds of strange tweaking ideas that seem on the surface to work ("hmm if the losers are doubled down on, they would make more money -- that means a system going against the original signal would be even better!") but fly in the face of logic. The Martingale system will work for a VERY long time given enough capital -- I wonder if anyone here would honestly espouse that kind of system to improve one's trading results. The "whole idea on how to go about trading" on this thread seems to be that profits are the end point and one doesn't need to really think about how or why these profits come (random volatility, setting a smaller target compared to the stop, trading times concentrated at open where volatility is greatest), while subsequently, the discussion on how to further improve those results puts "revenge trading" in a whole new light. Hope I'm not antagonizing you, just trying to get some more discussion going. If you and others here feel I'm not contributing at all to this thread, just tell me and I'll go away.
Well, I guess that is my end point - profits. That's all I care about - not understanding how they come beyond I did x,y,z and here they are. I don't really care why x,y,z works. You are not antagonizing at all. But I'm not really sure what you are trying to say - are you saying that unless this can be completely explained, logically, that it isn't worth trading even if it is profitable?
As I see it, there are two edges to the sucess equation. One is the indicator, the other the discipline. The ideas Quah has presented to us, in the form of his symplistic system, reflects the true element of trading that will ultimately affect profitibility of ANY system - and that is the absolute necessity of disciplined management of every single trade one makes - sticking to the rules no matter what. That is the real edge in daytrading - that you plan the trade and trade the plan. But, that edge must be combined with an indicator (or other any other motivation to open a position) that works more often than not. For Quah's system to be profitable, you've got to find a signal that is correct more times than it is incorrect -- otherwise, you will be flipping trades to recover b/e and slowly slip to negative losses over time. If your indicator works for the short time that you need it to, and you achieve a percentage of success with that indicator that surpasses your cost of trading the system, AND you maintain the discipline (the true edge), then you'll become profitable. Quah has been very generous in sharing his stochastics settings to us all (17 1 17 on a 2 min chart), which seem to be generating exciting results thus far. macal425 has modified the setup and excited enough to be doing cartweels in his office and I have tried a Momentum indicator with a setting of 1 on a 1 min chart, which has shown varying degrees of success. So Quah is definately onto something good. And I'm sure there are many other indicators that would get you on the right side of the trade more often than not - it's just a matter of finding a good one. Like Quah said, look in the toolbox and find something that serves the purpose that you need it for.
Trade your way to financial freedom. One of the main themes is that for a system to be a system, you must have an entry, an exit strategy, and positive expectancy for the trade. Positive expectancy means that for every dollar risk, you expect to make money, not lose it. He goes on to argue that the entry is the least important... it is hard to get an indicator that preforms better then random entry, and most pros trade systems that are under 50% win rate. This works because the winners pay for the losers. In the case of the ES strategy here, where the losses are bigger then the wins, thats ok too, if you have a high win rate. Also important is the frequency of the signal. In Quah's case, he gets 8 or signals a day! Much better to use a system that delivers you 2 points a trade 5 times a day then one big trade that gives you 20 points a week. Van Tharp also says you can have a system if you are a discretionary trader. Just use your real results as the back test, if you don't have a positive expectancy over a significant sample size, you don't have a good system. So in short, Quah has a system. Its just scalping, taking advantage of the volatility of the contract. His strict trade management is making it a good system. For those of you who do scalp successfully... don't you follow the same sort of rules?
I think agree with what ctrader is saying, that the edge in the strategy comes from the trader's ability to predict the immediate move, which sounds fine with me. The edge seems to be enforced by the strict discipline built into the system... I guess the trouble I was having was if you don't know where the edge is coming from in the first place, what do you look to fix when the system's not working? As Illiquid was getting at above also. Either way Quah you opened me up to some new ideas, so thanks and keep it up!!
This is definitely a danger. One of the benefits of insisting that profits and losses be taken at certain levels is that hope is eliminated from the equation. When one gets into flipping trades and SAR trades, hope - at least to some extent - is reintroduced into the equation, and that, for an unprofitable trader, could be disastrous. I would suggest to these traders, therefore, that they not even attempt to flip or reverse trades for the time being. If a particular trade winds up a loser, leave it alone. Take the two or three or five minutes or whatever to "recover" and to re-assess the dynamic of the chart. Then enter the next trade fresh rather than as a revenge trade. --Db
Let me add one other thing - above I said something about being profitable being that main thing - let me clarify. Certainly, being profitable is a requirement. Illiquid suggested that maybe currently profitable traders couldn't take anything from a system like this, and that may be true. But I'm not convinced. Another of the IMO important things (as I set out in my goals in my original post) - is to not have to sit in front of this PC all day long looking for good trades. A quality of life aspect if you will. I like being able to walk away at any time - and knowing that if I come back, when I should come back, and when the next trade would be should I decide to come back - all without having to look at anything other than the clock.